The basic lesson of M&M Theory is that the value of a firm is dependent upon the:
A) Capital structure of the firm.
B) Total cash flows of the firm.
C) Percentage of a firm to which the bondholders have a claim.
D) Tax claim placed on the firm by the government.
E) Size of the stockholders claims on the firm.

Question

Quizplus · Accepted Answer

The Modigliani-Miller theorem (M&M Theory) posits that under certain market conditions (especially no taxes, no bankruptcy costs, and symmetric information), the value of a firm is determined by its total cash flows and is not affected by its capital structure.

The Basic Lesson of M&M Theory Is That the Value