M&M Proposition I with taxes is based on the concept that:
A) the optimal capital structure is the one that is totally financed with equity.
B) capital structure is irrelevant because investors and companies have differing tax rates.
C) WACC is unaffected by a change in the company's capital structure.
D) the value of a taxable company increases as the level of debt increases.
E) the cost of equity increases as the debt-equity ratio increases.

Question

Quizplus · Accepted Answer

M&M Proposition I with taxes states that the value of a firm increases with leverage due to the tax shield provided by debt, as interest payments are tax-deductible.

M&M Proposition I with Taxes Is Based on the Concept