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Sagot :
Positively Related;
MM Proposition II states that the expected return on equity is positively related to leverage, the required return on equity is a linear function of the firm's debt to equity ratio, and the risk to equity increases with leverage.
More about MM Proposition II
According to the second proposition of the M&M Theorem, a company's cost of equity and level of leverage are directly inversely related. Increased leverage increases a company's likelihood of defaulting. As a result, in order to make up for the increased risk, investors frequently demand a higher cost of equity (yield).
Like proposition I this also has 2 propositions :
- With Tax
- Without Tax
Learn more about the proposition here:
https://brainly.com/question/14041475
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