In a perfect world of no taxes, which of the following statements regarding MM propositions is true?
A) According to proposition I, a firm is possibly to find its optimal capital structure.
B) Proposition II implies that an increase in leverage raises the risk of equity and thereby the required return on equity.
C) According to proposition II, changes in the capital mix of a firm will not affect the debt and equity values of the firm.
D) Proposition I states that the total firm value critically depends on capital structure.
Correct Answer:
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