In general terms, M&M Proposition I deals with the ﬁrm's ____ while M&M Proposition II deals with the ﬁrm's _____.
A) Value; level of risk.
B) Optimal debt-equity ratio; value.
C) Value; cost of equity.
D) Cost of equity; cost of debt.
E) Cost of debt; value.

Question

Quizplus · Accepted Answer

M&M Proposition I states that a firm's value is unaffected by its capital structure, while Proposition II states that the cost of equity increases with higher debt levels due to increased financial risk.

In General Terms, M&M Proposition I Deals with the ﬁRm's