Q 17.29. If a change in capital structure increases the risk both of the firm's equity...

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Q 17.29. If a change in capital structure increases the risk both of the firm's equity and debt, and there are no other financial claims, does it imply that the firm's risk has increased? Q 17.30. Work the example from Page 462 (sun [$100] with 3/4 probability, rain [$60] with 1/4 probability), if the debt promises $65 and offers an expected rate of 3%. What is the weight of equity in the capital structure? Q 17.31. M&M states that, in a perfect market, although both debt and equity become riskier due to an increase in the firm's leverage, both the firm's value and risk remain exactly the same. Conceptually, what would it take for the firm to become worth more and/or be safer even when Q 17.29. If a change in capital structure increases the risk both of the firm's equity and debt, and there are no other financial claims, does it imply that the firm's risk has increased? Q 17.30. Work the example from Page 462 (sun [$100] with 3/4 probability, rain [$60] with 1/4 probability), if the debt promises $65 and offers an expected rate of 3%. What is the weight of equity in the capital structure? Q 17.31. M&M states that, in a perfect market, although both debt and equity become riskier due to an increase in the firm's leverage, both the firm's value and risk remain exactly the same. Conceptually, what would it take for the firm to become worth more and/or be safer even when

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1729 Yes if a change in capital structure increases the risk of both equity and debt it implies that ... View the full answer