In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm this is known as:
A)MM Proposition III that the cost of equity is less than the cost of debt.
B)MM Proposition I that leverage is invariant to market value.
C)MM Proposition II that the cost of equity is always constant.
D)MM Proposition I that the market value of the firm is invariant to the capital structure.
E)MM Proposition III that there is no risk associated with leverage in a no tax world.

Question

Quizplus · Accepted Answer

This scenario is described by MM Proposition I, which states that in the absence of taxes and other market imperfections, the market value of a firm is independent of its capital structure. Therefore, the answer is D. MMM Proposition III and E are not relevant in this scenario, and proposition II is only true under certain assumptions.

In a World of No Corporate Taxes If the Use