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According to MM Proposition I, without taxes, the value of a firm is directly related to...

According to MM Proposition I, without taxes,

  • the value of a firm is directly related to the use of debt.

  • firm valuation is dependent upon shareholders aversion to homemade leverage.

  • any one capital structure is just as valuable as any other capital structure for a given firm.

  • corporate use of homemade leverage affects the value of the firm to its shareholders.

  • the value of an unlevered firm is greater than that of a levered firm.

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Answer #1

According to MM Proposition I, without taxes,one capital structure in just valuable as another capital structure for a given company because the value of a levered company is equal to the value of an unlevered company according to this philosophy.

Rest of the statements are false because it does not talk about domestic dividends or tax related consequences.

Correct answer would be option ( C)any one capital structure is just as valuable as any other capital structure for a given firm

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