M & M Proposition II Is the Proposition That

question 50

Multiple Choice

M & M Proposition II is the proposition that:

• A)the capital structure of a firm has no effect on the firm's value.
• B)the cost of equity depends on the return on debt, the debt-equity ratio, and the tax rate.
• C)a firm's cost of equity is a linear function with a slope equal to (R_A - R_D).
• D)the cost of equity is equivalent to the required rate of return on a firm's assets.
• E)the size of the pie does not depend on how the pie is sliced.

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Definitions:

Capital Assets

Long-term assets acquired or owned by a business or individual for the purpose of generating income or investment.

Exchange Rates

The rate at which one currency can be exchanged for another, often influenced by market conditions and economic indicators.

Exchange Gain/Loss

A financial result that occurs when the value of foreign currency transactions changes due to fluctuations in exchange rates between the initial transaction and settlement dates.

Functional Currency

The primary currency of the primary economic environment in which an entity operates, used in its financial reporting.