The basic lesson of M&M Theory is that the value of a ﬁrm is dependent upon the:
A) Capital structure of the ﬁrm.
B) Total cash ﬂows of the ﬁrm.
C) Percentage of a ﬁrm to which the bondholders have a claim.
D) Tax claim placed on the ﬁrm by the government.
E) Size of the stockholders claims on the ﬁrm.

Question

Quizplus · Accepted Answer

M&M Theory, or Modigliani-Miller Theorem, states that the value of a firm is determined by its total cash flows and not by its capital structure.

The Basic Lesson of M&M Theory Is That the Value