MM's Proposition II States That The

question 79

Multiple Choice

MM's proposition II states that the:

• A)Expected return on equity increases as financial leverage increases
• B)Expected return on assets decreases as expected return on debt decreases
• C)Firm's capital structure is irrelevant to value determination
• D)Greater the proportion of equity, the higher the expected return on debt

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Definitions:

After-Tax Annual Lease Payment

The amount of lease payments due each year after accounting for the tax effects.

After-Tax Discount Rate

The discount rate after adjusting for taxes, used to evaluate investments and their future cash flows after tax implications.

After-Tax Lease Payment

After-tax lease payment refers to the lease expense remaining after deducting taxation benefits associated with the lease, illustrating the net cost of leasing to the lessee.

Borrowed Funds Cost

The interest rate and other fees that a borrower must pay for the use of borrowed money.