Question

MM Proposition II with no taxes supports the argument that a firm's:
a. unlevered equity is risk-free.
b. cost of equity is inversely related to the firm's debt-equity level.
c. cost of equity is unaffected by the firm's unlevered cost of capital.
d. Incorrect WACC will exceed the unlevered firm's cost of equity.
e. WACC remains constant even if the firm changes its capital structure.

Answer 1

Answer:

e. WACC remains constant even if the firm changes its capital structure.

Explanation:

According to the MM approach having no taxes so the capital structure of the firm remains constant for the weighted average cost of capital

Also, the equity leverage would be changed for the debt to equity proportion

Therefore the option e is correct

And, the same is to be considered

All other options are incorrect