M&M Proposition 1 assumes all of the following except that,
A) there are no taxes.
B) there are no costs to acquire information.
C) there are no transactions costs.
D) the real investment policy of a firm is affected by its capital structure decisions.

Question

Quizplus · Accepted Answer

M&M Proposition 1 assumes that there are no taxes, no costs to acquire information, and no transactions costs. However, it does not assume that the real investment policy of a firm is affected by its capital structure decisions. This means that under M&M Proposition 1, a firm's investment decisions are unrelated to its financing decisions, and the value of the firm is determined only by the cash flows generated by its assets.

M&M Proposition 1 Assumes All of the Following Except That