According to Modigliani and Miller Proposition II: A.WACC curve is flat and hence no optimal capital structure exists B.WACC curve is upward slopping , indicating the equity financing exclusively being the optimal capital structure of a company C.WACC curve is downward slopping, hence the perfect capital structure is 100% debt D.An optimal capital structure exists as it is the balance between the tax benefit and the bankruptcy costs

Weighted Average Cost of Capital (WACC) : It is simply defined as the weighted average cost that has…

Answered: According to Modigliani and Miller…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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According to Modigliani and Miller Proposition II:

	A.	WACC curve is flat and hence no optimal capital structure exists
	B.	WACC curve is upward slopping , indicating the equity financing exclusively being the optimal capital structure of a company
	C.	WACC curve is downward slopping, hence the perfect capital structure is 100% debt
	D.	An optimal capital structure exists as it is the balance between the tax benefit and the bankruptcy costs

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