MM Proposition II is the proposition that:
A)supports the argument that the capital structure of a firm is irrelevant to the value of the firm.
B)the cost of levered equity depends solely on the return on debt,the debt-equity ratio,and the tax rate.
C)a firm's cost of equity capital is a positive linear function of the firm's capital structure.
D)the cost of equity is equivalent to the required return on the total assets of a levered firm.
E)the cost of debt is inversely related to a firm's debt-equity ratio.

Question

Quizplus · Accepted Answer

MM Proposition II states that a firm's cost of equity capital is a positive linear function of its capital structure, meaning as a firm increases its leverage, its cost of equity also increases.

MM Proposition II Is the Proposition That