Which one of the following states that a firm's cost of equity capital is a positive linear function of the firm's capital structure?
A)Static theory of capital structure
B)M&M Proposition I
C)M&M Proposition II
D)Homemade leverage theory
E)WACC

Question

Quizplus · Accepted Answer

M&M Proposition II states that a firm's cost of equity capital is a positive linear function of the firm's capital structure. This means that as the firm increases its debt-to-equity ratio, the cost of equity will also increase.

Which One of the Following States That a Firm's Cost