M&M Proposition I with no tax argues that:
A) Leverage increases the value of a ﬁrm.
B) The cost of equity decreases as the debt-equity ratio increases.
C) The value of a ﬁrm is unaffected by the debt-equity ratio the ﬁrm chooses.
D) The required return on a ﬁrm's assets is equal to the minimum weighted average cost of capital.
E) The value of a ﬁrm varies directly with a ﬁrm's cost of capital.

Question

Quizplus · Accepted Answer

M&M Proposition I with no tax states that the value of a firm is unaffected by the debt-equity ratio. This means that the choice of the debt-equity mix does not impact the overall value of the firm. Therefore, the correct answer is C.

M&M Proposition I with No Tax Argues That