Manag., July-2016-Q18
0. Match the items of List–I with the items of List–II :
| List–I | List-II |
| (a) M.M. Hypothesis without taxes | 1. The cost of debt and the cost of equity is assumed to be independent to the capital structure. |
| (b) Net operating income approach | 2. In the absence of taxes, a firm’s market value and the cost of capital remain invariant to the capital structure changes. |
| (c) M.M. Hypothesis under corporate taxes | 3. The cost of equity is assumed to increase linearly with leverage. |
| (d) Net income approach | 4. The value of the firm will increase with debt due to the deductibility of interest charges for tax computations and the value of the levered firm will be higher than the unlevered firm. |
