Under conditions of perfect capital markets,M&M suggest that the average cost of capital for the firm will increase with the addition of debt.

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Quizplus · Accepted Answer

M&M theory, under the assumptions of perfect capital markets, states that the average cost of capital (WACC) is independent of the capital structure of the firm. Therefore, adding debt will not increase the WACC. This is known as the Modigliani-Miller theorem.

Under Conditions of Perfect Capital Markets,M&M Suggest That the Average