MM Proposition II,without taxes,implies that the required return on equity is
A)a result of homemade leverage.
B)inversely related to the firm's debt-to-equity ratio.
C)directly affected by the firm's debt-to-equity ratio.
D)independent of the firm's capital structure.
E)a linear function of the market's rate of interest.

Question

Quizplus · Accepted Answer

MM Proposition II without taxes states that the required return on equity increases linearly with the firm's debt-to-equity ratio, reflecting the increased risk to equity holders as leverage increases.

MM Proposition II,without Taxes,implies That the Required Return on Equity