Which one of the following statements matches M&M Proposition I?
A)The value of a firm is independent of the firm's capital structure.
B)The cost of equity capital has a positive linear relationship with a firm's capital structure.
C)The value of a firm is dependent on the firm's capital structure.
D)The cost of equity capital varies in response to changes in a firm's capital structure.
E)The dividends paid by a firm determine the firm's value.

Question

Quizplus · Accepted Answer

M&M Proposition I states that the value of a firm is independent of its capital structure, all else being equal. This means that investors should be indifferent to whether a company is financed through debt or equity.

Which One of the Following Statements Matches M&M Proposition I