The conditions for a perfect capital market are:

(i) The law of one price holds
(ii) No taxes
(iii) No transaction costs of trading or issuing securities
(vi) Financing policy does not affect the cash flows generated by investment decisions

Given MM Theory, financial flexibility motives (which relate to the desire to raise capital without incurring high issuance costs) can only affect leverage under imperfect capital markets. Which of the conditions above must be false in reality for financial flexibility motives to affect leverage decisions?

A) Condition (i)
B) Conditions (iii)
C) Conditions (iv)
D) Financial flexibility motives affect leverage decisions even if all the conditions above are true
E) Conditions (ii)