The proposition that the value of the ﬁrm is independent of its capital structure is called:
A) The Capital Asset Pricing Model.
B) M&M Proposition I (without taxes).
C) M&M Proposition II.
D) The Law of One Price.
E) The Eﬃcient Markets Hypothesis.

Question

Quizplus · Accepted Answer

M&M Proposition I (without taxes) states that the value of a firm is independent of its capital structure. This means that the way a firm finances its operations (through debt or equity) does not affect its overall value.

The Proposition That the Value of the ﬁRm Is Independent