M&M Proposition I with no tax argues that:
A) Leverage increases the value of a firm.
B) The cost of equity decreases as the debt-equity ratio increases.
C) The value of a firm is unaffected by the debt-equity ratio the firm chooses.
D) The required return on a firm's assets is equal to the minimum weighted average cost of capital.
E) The value of a firm varies directly with a firm's cost of capital.

Question

Quizplus · Accepted Answer

M&M Proposition I without taxes states that the value of a firm is not affected by its capital structure, meaning its choice of debt-equity ratio does not impact its overall value. This proposition assumes perfect markets without taxes, bankruptcy costs, or asymmetric information.

M&M Proposition I with No Tax Argues That