Question

MM proposition I without taxes supports the argument that ________.

Answer 1

MM proposition I without taxes suggests that a company's value is unaffected by its capital structure but depends on its earning power and asset risk.

Step-by-step explanation:

MM proposition I without taxes supports the argument that a company's capital structure does not affect its overall value. The proposition, formulated by economists Franco Modigliani and Merton Miller in 1958, implies that in a perfect market without taxes, bankruptcy costs, agency costs, and asymmetric information, the way a company finances itself is irrelevant. It suggests that the total value of a firm is determined by its earning power and the risk of its underlying assets and is independent of the way it chooses to finance its investments or distribute dividends.