Question

"Under MM Proposition II, a firm's cost of equity capital is ______ related to the firm's debt-equity ratio provided the cost of capital for an all-equity firm exceeds the cost of debt."

Answer 1

Directly

Step-by-step explanation:

The cost of equity is directly related to a company's debt to equity ratio.

As the use of debt increases, the cost of equity increases to maintain a constant weighted average cost of capital.