Answered

Westonci.ca offers quick and accurate answers to your questions. Join our community and get the insights you need today. Get immediate and reliable solutions to your questions from a community of experienced experts on our Q&A platform. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform.

MM Proposition II with taxes: Group of answer choices explains how a firm's WACC increases with the use of financial leverage. reveals how utilizing the tax shield on debt causes an increase in the value of a firm. supports the argument that business risk is determined by the capital structure employed by a firm. supports the argument that the cost of equity decreases as the debt-equity ratio increases. reaches the final conclusion that the capital structure decision is irrelevant to the value of a firm.

Sagot :

Answer:

explains how a firm's WACC increases with the use of financial leverage.

Explanation:

According to the MM Proposition II with taxes, the cost of equity rises with the increases use of debt in the capital structure of a firm.  

[tex]r_{e}[/tex] = [tex]r_{o} +( r_{o} - r_{d} )[/tex] × [tex]\frac{D}{E}[/tex]

As cost of equity increases, the firm's WACC increases also

The  MM Proposition I with taxes reveals how utilizing the tax shield on debt causes an increase in the value of a firm

Thanks for using our service. We aim to provide the most accurate answers for all your queries. Visit us again for more insights. Thank you for choosing our platform. We're dedicated to providing the best answers for all your questions. Visit us again. We're here to help at Westonci.ca. Keep visiting for the best answers to your questions.