1. Assume a Modigliani and Miller world with no taxes where the required rate of return of an un-levered firm is 9.5%. What is the cost of equity in an identical levered firm where the cost of debt is 9% and the D/E ratio is 2.0?
a. 9.25%
b. 10.50%
c. 18.00%
d. 0.50%
2. When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification. a. True b. False