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, without taxes, states that the value of a firm is independent of its capital structure. Therefore, any one capital structure is as valuable as any other capital structure for a given firm. This is known as the irrelevance principle. Option A, D, and E are incorrect as they suggest that the value of a firm is affected by leverage or the use of debt. Option C is partially correct, as corporate use of homemade leverage can affect the value of the firm, but this is not what MM Proposition I addresses.

MM Proposition I,without Taxes,illustrates That