GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Decreasing k0
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Arbitrage Process
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Cost of Debt and Equity
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All of the above
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Detailed explanation-1: -In MM-Model, irrelevance of capital structure is based on: Cost of Debt.
Detailed explanation-2: -What is the Irrelevance Proposition Theorem? The irrelevance proposition theorem is a theory of corporate capital structure that was developed by Merton Miller and Franco Modigliani in 1958. This theory states that the capital structure of a company does not affect its value.
Detailed explanation-3: -Capital structure irrelevance assumptions No agency costs: no costs from increased leverage. Investment decisions are unaffected by financing decisions: revenues from operations are independent of how the operations are financed. Riskless borrowing and and lending.
Detailed explanation-4: -The Modigliani-Miller theorem states that a company’s capital structure is not a factor in its value. Market value is determined by the present value of future earnings, the theorem states. The theorem has been highly influential since it was introduced in the 1950s.