In a World of No Corporate Taxes If the Use

question 17

Multiple Choice

In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm this is known as:

• A) the conservation of energy principle.
• B) MM Proposition I that leverage is invariant to market value.
• C) MM Proposition II that the cost of equity is always constant.
• D) MM Proposition I that the market value of the firm is invariant to the capital structure.
• E) MM Proposition III that there is no risk associated with leverage in a no tax world.

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