Which of these proposes that the value of a levered firm exceeds the value of an unlevered firm by the present value of the tax shield?
A)MM Proposition I with and without taxes
B)MM Proposition I with tax
C)MM Proposition II with tax
D)MM Proposition I without tax
E)MM Proposition II without tax

Question

Quizplus · Accepted Answer

MM Proposition I with tax states that the value of a levered firm exceeds the value of an unlevered firm by the present value of the tax shield, which is equivalent to choice B. Proposition II focuses on the effect of debt on a firm's cost of equity and does not directly address the value of a levered versus unlevered firm. Proposition I without tax and Proposition II without tax also do not address the tax shield.

Which of These Proposes That the Value of a Levered