For each of the statements below, state whether you agree or disagree. This should be followed by a rationale (roughly a paragraph). Your justification should be grounded in corporate finance theory and a clear understanding of finance practice.
A: A company that does not borrow money cannot fail.
B: A company, that pays taxes, can reduce the cost of equity and the weighted average cost of capital by reducing the proportion of debt in its firmĂ˘â‚¬â„˘s capital structure.
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C: The equation VL = VU + TD implies that if the government increased the marginal corporate tax rate, all levered firms would increase in value.
D: Since IPOs are typically under-priced, a strategy of applying for all issues (in equal amounts) is likely to produce substantial investment returns.