Question
Under M&M Proposition II with no taxes, the weighted average cost of capital is invariant to the debt level because Blank______.
Multiple choice question.
the return on assets (RA) is unchanged
taxes are invariant to debt
the return on assets (RA) is lower
the return on debt (RD) declines
Multiple choice question.
the return on assets (RA) is unchanged
taxes are invariant to debt
the return on assets (RA) is lower
the return on debt (RD) declines
Answers
GPT-4o mini
Under M&M Proposition II with no taxes, the weighted average cost of capital is invariant to the debt level because **the return on assets (RA) is unchanged**.
This proposition posits that the overall cost of capital for a firm remains constant regardless of its capital structure as long as there are no taxes, bankruptcy costs, or other market imperfections influencing the costs involved.
This proposition posits that the overall cost of capital for a firm remains constant regardless of its capital structure as long as there are no taxes, bankruptcy costs, or other market imperfections influencing the costs involved.