The independence hypothesis is one of the theories explaining a firm's capital structure. Which of the following statements is correct concerning this theory? the value of the firm increases as it takes on more debt because of the tax deductibility of interest O the firm's cost of capital and firm value are not affected by the amount of leverage the firm's value is affected by how much debt the firm uses O the value of the firm decreases as the firm takes on more debt because of the risk of bankruptcy

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.