Which one of these presents the idea that the cost of equity is a positive linear function of capital structure?
A)MM Proposition I,without taxes
B)MM Proposition II,without taxes
C)Capital asset pricing model
D)MM Proposition I,with taxes
E)Homemade leverage

Question

Quizplus · Accepted Answer

MM Proposition II without taxes suggests that the cost of equity increases linearly as the proportion of debt in the capital structure increases. This is because as a firm takes on more debt, the risk to equity holders increases, leading to a demand for higher returns.

Which One of These Presents the Idea That the Cost