M and M Proposition II States That

question 81

Multiple Choice

M and M Proposition II states that

• A) the value of a firm's assets and operations does not change with changes in the firm's capital structure.
• B) the value of the firm is maximized when the WACC after-tax is minimized.
• C) the cost of equity is a positive linear function of its capital structure.
• D) the only risk relevant in measuring the cost of equity is business risk.

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Definitions:

Collection Delay

The period between when a company bills its customer and when it actually receives payment, impacting cash flow.

Average Daily Float

The average amount of uncollected funds in a company's checking account, representing checks written against and deposited in the account but not yet cleared.

Collection Float

The time period between when a payment is made by a customer and when the funds become available in the company’s account.