Question

Which of the following statements is FALSE?A. MMProposition1, if there are no taxes, states the value of the firm does not depend whatsoever on itscapital structure.B. MM Proposition 2, if there are no taxes, explains how the cost of equity decreases as the firm increasesits use of debt financing.C. Because interest expense is tax deductible, leverage increases the firm's value by the amount of thepresent value of the interest tax shield.D. Because interest expense is tax deductible, a firm's WACC decreases as firms rely more heavily on debt financing.

Answer 1

B. MM Proposition 2, if there are no taxes, explains how the cost of equity decreases as the firm increases its use of debt financing

Step-by-step explanation: