Question

MM Proposition I without taxes is used to illustrate: capital structure changes have no effect on stockholders' welfare. All of these. leverage does not affect the value of the firm. that one capital structure is as good as another. the value of an unlevered firm equals that of a levered firm.

Answer 1

The correct option is 'All of these'

Miller Modigliani propostion without taxes I assume there are no taxes applicable on the firm. Without taxes, the tax benefit that a firm was getting due to the tax deductibility of interest expense would not be available. This implies, the firm would become indifferent between debt and equity. This also implies value of levered and unlevered firm is same. So three statements are correct.

Given that there is no change in value fo firm related to change in capital structure, this implies the value generated for shareholders remain the same in any of the scenarios and hence, 4th statement is also true.

Hence all 4 statements are true. Hence the answer.