Which one of the following is an implication of M&M Proposition II,without taxes?
A)A firm's optimal capital structure is 100 percent debt.
B)WACC is unaffected by the capital structure of a firm.
C)WACC decreases as the debt-equity ratio increases.
D)A firm's capital structure is irrelevant.
E)The risk of equity depends on both the degree of financial leverage and the riskiness of the firm's operations.

Question

Quizplus · Accepted Answer

M&M Proposition II without taxes states that the cost of equity increases with financial leverage, reflecting both the business risk and the financial risk due to debt.

Which One of the Following Is an Implication of M&M