A key assumption of MMs Proposition I (no taxes) is:
A) that financial leverage increases risk.
B) that individuals can borrow on their own account at rates less than the firm.
C) that individuals must be able to borrow on their own account at rates equal to the firm.
D) managers are acting to maximize the value of the firm.

Question

Quizplus · Accepted Answer

Modigliani and Miller's Proposition I (no taxes) assumes that individuals can borrow at the same rates as corporations, which allows them to adjust their personal leverage to offset the leverage decisions made by firms, thus making the firm's capital structure irrelevant to its value.

A Key Assumption of MMs Proposition I (No Taxes) Is