Which One of the Following Statements Is the Core Principle

question 23

Multiple Choice

Which one of the following statements is the core principle of M&M Proposition I, without taxes?

• A)A firm's cost of equity is directly related to the firm's debt-equity ratio.
• B)A firm's WACC is directly related to the firm's debt-equity ratio.
• C)The interest tax shield increases the value of a firm.
• D)The capital structure of a firm is totally irrelevant.
• E)Levered firms have greater value than unlevered firms.

---

Definitions:

Duopoly

A market structure dominated by two companies, often resulting in closely competitive or collaborative strategies between them.

High-price Strategy

A pricing approach where goods or services are sold at a higher price point, typically justified by branding, quality, or unique features.

Low-price Strategy

A business approach where a company sets a lower price for its products or services than its competitors to attract more customers and gain market share.

Profit

The financial gain obtained when the revenues generated from business activities exceed the expenses, costs, and taxes needed to sustain those activities.