Question: The difference between the M&M theory Case I (no taxes no bankruptcy costs) and M&M Case II (taxes no bankruptcy costs): Questions: 1) The relationship

  1. The difference between the M&M theory Case I (no taxes no bankruptcy costs) and M&M Case II (taxes no bankruptcy costs):
  1. Questions:
  2. 1) The relationship between cost of equity and leverage linear in Case I and non-linear in Case II?
  3. 2) Debt is more important according to Case I?
  4. 3) Case I does not consider the advantages of debt but Case II only considers the advantages of debt ?
  5. 4) Case I has an optimal capital structure while Case II does not?
  6. 5) Cost of equity increases with cost of equity in Case I only?

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