The proposition that the value of a levered firm is equal to the value of an unlevered firm is known as:
A) M&M Proposition I with no tax.
B) M&M Proposition II with no tax.
C) M&M Proposition I with tax.
D) M&M Proposition II with tax.
E) Static theory proposition.

Question

Quizplus · Accepted Answer

M&M Proposition I with no tax states that the value of a levered firm is equal to the value of an unlevered firm, assuming no taxes, bankruptcy costs, agency costs, and asymmetric information.

The Proposition That the Value of a Levered Firm Is