Which of the following statements are correct in relation to M & M Proposition II with...

Which of the following statements are correct in relation to M & M Proposition II with no taxes?

I. The required return on assets is equal to the weighted average cost of capital.

II. Financial risk is determined by the debt-equity ratio.

III. Financial risk determines the return on assets.

IV. The cost of equity declines when the amount of leverage used by a firm rises.

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Expert Solution

Ans

I. The required return on assets is equal to the weighted average cost of capital.

II. Financial risk is determined by the debt-equity ratio.

Both of the above statements are correct.

jeff jeffy answered 1 year ago

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