The proposition that the value of the firm is independent of its capital structure is called:
A) the capital asset pricing model.
B) MM Proposition I.
C) MM Proposition II.
D) the law of one price.
E) the efficient markets hypothesis.

Question

Quizplus · Accepted Answer

MM Proposition I states that the value of the firm is independent of its capital structure, assuming perfect capital markets, no taxes, symmetric information, no transaction costs, and no bankruptcy costs. Therefore, the correct answer is (B) MM Proposition I. The other options are unrelated to this proposition.

The Proposition That the Value of the Firm Is Independent