In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm this is known as:
A) the conservation of energy principle.
B) MM Proposition I that leverage is invariant to market value.
C) MM Proposition II that the cost of equity is always constant.
D) MM Proposition I that the market value of the firm is invariant to the capital structure.
E) MM Proposition III that there is no risk associated with leverage in a no tax world.

Question

Quizplus · Accepted Answer

This statement matches MM Proposition I, which states that in a world without taxes, the market value of a firm is independent of its capital structure, meaning that using leverage does not change the firm's value relative to an unlevered version of the same firm. The other choices are not accurate descriptions of this principle.

In a World of No Corporate Taxes If the Use