According to M&M Proposition I with taxes, the value of a levered firm will increase when the:
A)value of the unlevered firm increases.
B)tax rate is decreased.
C)debt-equity ratio is lowered.
D)interest rate on the debt is lowered.
E)interest rate on the debt is increased.

Question

Quizplus · Accepted Answer

According to M&M Proposition I with taxes, the value of a levered firm increases with the value of the unlevered firm because the tax shield on debt adds value to the firm.

According to M&M Proposition I with Taxes, the Value of a Levered