The proposition that the value of the firm is independent of its capital structure is called:
A)the capital asset pricing model.
B)MM Proposition I.
C)MM Proposition II.
D)the law of one price.
E)the efficient market hypothesis.

Question

Quizplus · Accepted Answer

MM Proposition I, also known as the capital structure irrelevance principle, states that the total value of the firm is not affected by its capital structure. This means that whether a firm chooses to finance its investments with debt or equity, the overall value of the firm remains the same. It assumes perfect markets where there are no taxes or transaction costs.

The Proposition That the Value of the Firm Is Independent