Under the simplifying assumptions of Modigliani and Miller,an increase in a firm's financial leverage will:

Question

Quizplus · Accepted Answer

Under the Modigliani and Miller framework, with no taxes and perfect markets, increasing financial leverage increases the variability in earnings per share because more debt increases the risk to equity holders, but it does not change the overall value of the firm. Operating risk is unaffected by financing decisions in this model.

Under the Simplifying Assumptions of Modigliani and Miller,an Increase in a Firm's