24. Regarding MM 1958 proposition, all of the following is correct EXCEPT a. Shareholders should care...
24. Regarding MM 1958 proposition, all of the following is correct EXCEPT
a. Shareholders should care about the firm's debt policy.
b. Firm value is unaffected by the firm's capital structure.
c. After a change in capital structure, the firm's value should be the same as it was prior to the chance in capital structure.
d. The proposition is also called the debt-irrelevance proposition.
29. Regarding MM 1958 proposition, a firm's value is not influenced by
a. interest rate paid on debt.
b. required rate of return on equity.
c. mixture of debt and equity.
d. operating income, in the absence of taxes.
30. Harmony Sego has a tax rate of 21%, the interest rate on debt is 10%, and the WACC is 15%. If the debt ratio is 60% (i.e., the weight on debt), what is the expected rate of return to equity holders?
a. 12.50%
b. 22.50%
c. 25.65%
d. 21.25%
Homework Answers
24.correct answer is option (A)
Explanation:-The main idea of MM theory is that value of firm is not affected by capital structure of firm that means whether firm is leveraged or not leveraged,it does not affect firm's value .Therefore it is also called debt irrelevance theory.
Hence ,shareholders should not care about debt policy
29.correct answer is option C
Explanation:-As we have studied above ,firm's value is not affect by capital structure of firm as per MM approach.It means mixture of debt and equity does not influence value of firm.
30.
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24. Regarding MM 1958 proposition, all of the
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