The proposition that the value of the firm is independent of its capital structure is called:
A) The Capital Asset Pricing Model.
B) M&M Proposition I (without taxes).
C) M&M Proposition II.
D) The Law of One Price.
E) The Efficient Markets Hypothesis.

Question

Quizplus · Accepted Answer

M&M Proposition I (without taxes), formulated by Franco Modigliani and Merton Miller, states that in a perfect market (without taxes, bankruptcy costs, etc.), the value of a firm is not affected by how that firm is financed, whether through debt or equity.

The Proposition That the Value of the Firm Is Independent