1. According to the M&M, in a world with no taxes, the capital structure choice is irrelevant because

A) what influences stock price is only the equity portion of financing and not debt financing

B) debt does not provide any marginal benefit expect to lower taxes

C) as the firm increases debt, the benefit of lower cost of debt is offset by the increase in cost of equity

D) shareholders are indifferent between debt and equity because company financing choices do not affect dividends

2. Which of the following statements is WRONG?

A) lower debt leads to lower swings in ROE

B) cost of debt is generally lower than cost of equity

C) higher debt increases the financial risk

D) higher debt decreases the required returns of shareholders