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Which Three of the Following Are Modigliani and Miller's Three

Question 27

Multiple Choice

Which three of the following are Modigliani and Miller's three propositions for a perfect no- tax world?


A) The total market value of any company is independent of its capital structure.
B) The expected rate of return on equity increases proportionately with the gearing ratio.
C) The effect of gearing is to magnify the degree of variation in a firm's income for shareholders' returns.
D) The cut- off rate of return for new projects is equal to the weighted average cost of capital - which is constant regardless of gearing.

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