Asked by
cadie beth gates
on Nov 07, 2024
Verified
In general terms, M&M Proposition I deals with the firm's ____ while M&M Proposition II deals with the firm's _____.
A) Value; level of risk.
B) Optimal debt-equity ratio; value.
C) Value; cost of equity.
D) Cost of equity; cost of debt.
E) Cost of debt; value.
M&M Proposition I
A principle in corporate finance that asserts the market value of a firm is unaffected by the capital structure, assuming no taxes and perfect markets.
M&M Proposition II
A theory proposing that the cost of equity increases with the level of debt in a company, making the firm's weighted average cost of capital remain unchanged.
Cost of Equity
The return rate that shareholders require to invest in a company's equity, taking into account the risk associated with the investment.
- Acquire knowledge and provide explanations for Modigliani-Miller Propositions I and II, with emphasis on the aspects of firm value, cost of capital, and the application of financial leverage.
Verified Answer
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Learning Objectives
- Acquire knowledge and provide explanations for Modigliani-Miller Propositions I and II, with emphasis on the aspects of firm value, cost of capital, and the application of financial leverage.