MM Proposition I,without taxes,illustrates that
A)the value of an unlevered firm is greater than that of a levered firm.
B)any one capital structure is just as valuable as any other capital structure for a given firm.
C)corporate use of homemade leverage affects the value of the firm to its shareholders.
D)the value of a firm is directly related to the use of debt.
E)firm valuation is dependent upon shareholders aversion to homemade leverage.

Question

Quizplus · Accepted Answer

MM Proposition I states that, in the absence of taxes and other market imperfections, the value of a firm is determined by its earning power and the risk of its underlying assets and is not affected by its capital structure. This means that any one capital structure is just as valuable as any other capital structure for a given firm. Therefore, the answer is B.

MM Proposition I,without Taxes,illustrates That