In relation to M&M Proposition II with no taxes, ﬁnancial risk is determined by the debt-equity ratio.

Question

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According to M&M Proposition II with no taxes, financial risk is determined by the debt-equity ratio. The proposition states that the cost of equity increases as the firm's leverage increases, leading to an increase in financial risk. This means that a high debt-equity ratio will result in a higher financial risk for the firm.

In Relation to M&M Proposition II with No Taxes, ﬁNancial