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In a world with no taxes, MM show that a firm's capital structure does not affect the firm's value. However, when taxes are considered, MM show a positive relationship between debt and value, i.e., its
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In a world with no taxes, MM show that a firm's capital structure does not affect the firm's value. However, when taxes are considered, MM show a positive relationship between debt and value, i.e., its value rises as its debt is increased.A. TrueB. False

User Shawn McCool
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Answer:

True

Step-by-step explanation:

According to MM, without taxes, the market value of the company is not affected by capital structure. As a result, the WACC is unaffected by capital structure. Here, the value of a company is determined by cash flows.

In the case where there is tax, the value of a company with debt is greater than that of the same company without debt for the same level of income.

User Jeremy McGibbon
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