Question $1(1$ point$)$

M&MII is an extension of M&M I in that the very restrictive assumptions still apply. However, the M&M II

model assumes that corporate tax exists whereas the M&M I model assumes no taxes whatsoever.

True

False

Question $2(1$ point$)$

Under M& M II more cash flow goes to investors and less to taxes because debt shields some of the firm's

cash flows from taxes

True

False

Question $3(1$ point$)$

Under M&M II the value of the firm is greatest when it is funded with equal amounts

of debt and equity

True

False

Question $4(1$ point$)$

Proposition $1$ of M&M II states that the value of the levered firm $=$ the value of the unlevered firm plus the

amount of the firm's debt.

True

False

Question $5(1$ point$)$

The Hamada equation provides a way of calculating beta for different levels of capital structure.

True

False