According to M&M Proposition 1. in a world where corporations pay taxes on their income Multiple Choice the value of a firm is inversely related to the amount of leverage used by the firm. a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm. the value of an unlevered firm is equal to the value of a levered firm plus the interest tax shield. the value of the firm increases as the debt-to-equity ratio increases a firm's weighted average cost of capital increases as the debt-equity ratio of the firm increases