According to MM II, as a firm's debt-equity ratio decreases:

Name: According to MM II, as a firm's debt-equity ratio decreases:
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According to MM II, as a firm's debt-equity ratio decreases, the cost of equity also decreases, leading to a lower required rate of return on equity. This is because equity becomes less risky relative to debt, resulting in a lower cost of capital for the firm. Therefore, the correct answer is D, the required rate of return on equity decreases.

According to MM II, as a Firm's Debt-Equity Ratio Decreases