True or False: MM 1963 Proposition states that if the debt-equity ratio increases, the WACC will...

Question

Question

True or False: MM 1963 Proposition states that if the debt-equity ratio increases, the WACC will go up accordingly.

business finance

Answer 1

Answer #1

False.

MM proposition states that WACC will remain constant irrespective of the increase in debt equity increase.

This is because change in WACC will lead to an adjustment in one of the components cost such that the WACC will be constant.

Answer 2

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