In M&M Proposition II the Cost of Equity Changes with Changes

question 57

Multiple Choice

In M&M Proposition II the cost of equity changes with changes in the amount of debt financing.Which of the following is the correct formula for Proposition II?

• A)K_e = K_u + (K_u - K_d)/ ( \(\frac { D } { E }\) )
• B)K_e = K_u + (K_u - K_d)( \(\frac { D } { E }\) )
• C)K_e = K_u + (K_u + K_d)( \(\frac { D } { E }\) )
• D)K_e = K_u + (K_u + K_d)/ ( \(\frac { D } { E }\) )

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