Which one of the following statements is the core principle of M&M Proposition I,without taxes?
A)A firm's WACC is directly related to the firm's debt-equity ratio.
B)Levered firms have greater value than unlevered firms.
C)The interest tax shield increases the value of a firm.
D)A firm's cost of equity is directly related to the firm's debt-equity ratio.
E)The capital structure of a firm is totally irrelevant.

Question

Quizplus · Accepted Answer

The core principle of M&M Proposition I without taxes is that the capital structure of a firm is totally irrelevant. This means that the value of a firm is determined solely by the underlying profitability of its assets and not by the way it is financed. In other words, the value of a firm is independent of its debt-equity ratio.

Which One of the Following Statements Is the Core Principle