Which one of the following statements matches M&M Proposition I?
A)The cost of equity capital has a positive linear relationship with a firm's capital structure.
B)The dividends paid by a firm determine the firm's value.
C)The cost of equity capital varies in response to changes in a firm's capital structure.
D)The value of a firm is independent of the firm's capital structure.
E)The value of a firm is dependent on the firm's capital structure.

Question

Quizplus · Accepted Answer

M&M Proposition I states that the value of a firm is independent of the firm's capital structure. It suggests that in the absence of taxes, bankruptcy costs, and agency costs, the overall value of a firm remains the same regardless of how it is financed. Therefore, choice D is the correct answer.

Which One of the Following Statements Matches M&M Proposition I