The objective of the research reported in this dissertation is to conduct an empirical test of the hypothesis that, excluding income tax effects, the cost of capital to a firm is independent of the degree of financial leverage employed by the firm. This hypothesis, set forth by Franco Modigliani and Merton Miller in 1958, represents a challenge to the traditional view on the subject, a challenge which carries implications of considerable importance in the field of finance. The challenge has led to a lengthy controversy which can ultimately be resolved only by subjecting the hypothesis to empirical test. The basis of the test was Modigliani and Miller's Proposition II, a corollary of their fundamental hypothesis. Proposition II, in effect, states that equity investors fully discount any increase in risk due to financial leverage so that there is no possibility for the firm to reduce its cost of capital by employing financial leverage. The results of the research reported in this dissertation do not support that contention. The study indicates that, if equity investors require any increase in premium for increasing financial leverage, the premium required is significantly less than that predicted by the Modigliani-Miller Proposition II, over the range of …

The purpose of this study is to determine the effects of water pollution control on financing municipal water pollution control facilities in selected cities in North Central Texas. This objective is accomplished by addressing the following topics: (1) the cost to municipalities of meeting federally mandated water pollution control, (2) the sources of funds for financing sewage treatment, and (3) the financial implications of employing these financing tools to satisfy water quality regulations. The study makes the following conclusions regarding the impact of water pollution control costs on municipalities in the North Central Texas Region: 1) The financing of the wastewater treatment requirements of the Water Pollution Control Act Amendments of 1972 will cause many municipalities to report operating deficits for their Water and Sewer Fund. 2) A federal grant program funded at the rate of 75 per cent of waste treatment needs will prevent operating deficits in the majority of cities in which 1990 waste treatment needs constitute 20 per cent or more of the expected Water and Sewer Fund capital structure. 3) A federal grant program funded at the average rate of 35 per cent of needs will benefit only a small number of cities. 4) The federal …