Modigliani-Miller theorem (M&M) states that the market value of a company is calculated using its earning power and the risk of its underlying assets and is independent of the way it finances investments or distributes dividends.

Question 3 The ABC Company has a WACC of 20%. Its cost of debt is 12%, which is equal to the risk-free rate of interest. If ABC's debt to equity ratio is 2, what is the cost of equity capital? ABC's equity beta is 1.5 a) What are the M&M propositions I, Il and IIl please use graphs/charts and words to explain. b) Based on the M&M proposition II, what is the beta of the entire firm