According to Modigliani-Miller propositions, a firm’s cost of equity in a perfect financial market is determined...

According to Modigliani-Miller propositions, a firm’s cost of equity in a perfect financial market is determined by all of the followings EXCEPT ____.

Group of answer choices

A. risk-free interest rate
B. reward to the total business risk
C. reward to the nondiversifiable portion of the business risk
D. reward to additional risk added by financial leverage

Solutions

Expert Solution

According to Modigliani-Miller propositions, a firm’s cost of equity in a perfect financial market is determined by all of the followings EXCEPT

(C)Reward to the nondiversifiable portion of the business risk

AND
(D.) reward to additional risk added by financial leverage

As MM approach believe that debt, taxation donot have any impact over over-all value of firm .MM approach considers them irrelevant

jeff jeffy answered 1 year ago

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