MMs Proposition II in a world without taxes states that R R B S S 0
Question:
MM’s Proposition II in a world without taxes states that R R B
S S 0 (R0 RB )
This implies that the expected rate of return on equity (also called the cost of equity or the required return on equity) is positively related to the firm’s leverage. This makes intuitive sense because the risk of equity rises with leverage, a point illustrated by Figure 15.2.
LO.1
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Question Posted: