Which statements correct in relation to m-m proposition

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Problem 1: Horton Anonymous has a debt-to-equity ratio of one and pays a flat tax of 15% on taxable income. Which one of the following statements is correct in relation to M&M Proposition II?

Multiple Choice

Option 1: The firm's required return on assets is greater than the weighted average cost of capital.
Option 2: The firm's required return on assets is equal to the weighted average cost of capital.
Option 3: The firm's cost of equity remains constant as the debt-equity ratio increases.
Option 4: The firm's financial risk is unaffected by the debt-equity ratio.
Option 5: The firm's cost of equity is inversely related to the debt-equity ratio.

Reference no: EM132751422

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