M&M Proposition II is the proposition that:

Multiple Choice

• Supports the argument that the capital structure of a firm is irrelevant to the value of the firm.

• The cost of equity depends on the return on debt, the debt-equity ratio and the tax rate.

• A firm's cost of equity capital is a positive linear function of the firm's capital structure.

• The cost of equity is equivalent to the required return on the total assets of a firm.

• Supports the argument that the size of the pie does not depend on how the pie is sliced.