Modigliani-Miller Proposition I Overview

Very Easy Capital Structure Decisions Modigliani-miller Propositions

According to Modigliani-Miller Proposition I in a perfect market, the value of a firm is independent of its capital structure. This proposition implies that changing the mix of debt and equity does not affect the total value of the firm. Which of the following statements best describes this principle?

Increasing debt will always increase the value of the firm.

The value of a leveraged firm is higher than that of an unleveraged firm.

The value of the firm remains unchanged regardless of its capital structure.

Hint

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