MM Proposition I with no tax supports the argument that:
A)business risk determines the return on assets.
B)it is completely irrelevant how a firm arranges its finances.
C)the cost of equity rises as leverage rises.
D)a firm should borrow money up to the point where the cost of debt equals the cost of equity.
E)financial risk is determined by the debt-equity ratio.

Question

Quizplus · Accepted Answer

MM Proposition I with no tax argues that the value of a firm is determined by its real assets and the cash flows they generate, and not by how the firm finances those assets. Therefore, the way a firm arranges its finances is completely irrelevant.

MM Proposition I with No Tax Supports the Argument That