Asked by Daniel Amoako on Jul 16, 2024
Verified
According to _________, the value of the firm is independent of its capital structure.
A) M&M Proposition I without taxes.
B) M&M Proposition I with taxes.
C) The static theory of capital structure.
D) M&M Proposition II without taxes.
E) M&M Proposition II with taxes.
Capital Structure
Capital Structure refers to the mix of debt and equity financing a company uses to fund its operations and growth.
M&M Proposition I
A principle of corporate finance stating that, under certain conditions, the value of a company is not affected by how it is financed, regardless of whether the company is financed by debt or equity.
Value of the Firm
The total worth of a company based on its current market capitalization plus any debts, and minus any cash on the company's balance sheet.
- Master and interpret the foundational ideas of the Modigliani-Miller Propositions I and II, related to evaluating firm worth, the expense of capital, and the employment of financial leverage.
Verified Answer
SM
Shuvo Mohd.Jul 20, 2024
Final Answer :
A
Explanation :
M&M Proposition I without taxes states that the value of a leveraged firm is the same as the value of an unleveraged firm, implying that capital structure does not affect a firm's value in a world without taxes.
Learning Objectives
- Master and interpret the foundational ideas of the Modigliani-Miller Propositions I and II, related to evaluating firm worth, the expense of capital, and the employment of financial leverage.