Which Three of the Following Are Modigliani and Miller's Three

question 24

Multiple Choice

Which three of the following are Modigliani and Miller's three propositions for a perfect no- tax world?

• A) The total market value of any company is independent of its capital structure.
• B) The expected rate of return on equity increases proportionately with the gearing ratio.
• C) The effect of gearing is to magnify the degree of variation in a firm's income for shareholders' returns.
• D) The cut- off rate of return for new projects is equal to the weighted average cost of capital - which is constant regardless of gearing.

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