MM Proposition II is the proposition that:
A)supports the argument that the capital structure of a firm is irrelevant to the value of the firm.
B)a firm's cost of equity is a positive linear function of the firm's capital structure.
C)the cost of levered equity is determined solely by the return on debt,the debt-equity ratio,and the tax rate.
D)the cost of equity depends on the market value of the firm's assets.
E)supports the argument that the size of the pie does not depend on how the pie is sliced.

Question

Quizplus · Accepted Answer

MM Proposition II states that a firm's cost of equity increases linearly with its debt-equity ratio, reflecting the increased risk to equity holders as leverage increases.

MM Proposition II Is the Proposition That