Assignment:
Q1. MM assumed that firms do not grow. How does positive growth change their conclusions about the value of the levered firm and its cost of capital?
Q2. Your firm’s CEO has just learned about options and how your firm’s equity can be viewed as an option. Why might he want to increase the riskiness of the firm and why might the bondholders not be very happy about this?
Provide complete and step by step solution for the question and show calculations and use formulas.