17. Your boss would like you to explain something useful you learned from your studies. You explain that M&M Proposition I argues that in a world with taxes:

A. the capital structure of a firm does not matter because investors can use homemade leverage.

B. the value of a firm increases as the firm's debt increases because of the interest tax shield.

C. the optimal capital structure is the one that is totally financed with equity.

D. the cost of equity increases as the debt-equity ratio of a firm increases.

E. a firm's WACC is unaffected by a change in the firm's capital structure.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answer is B the value of a ... View the full answer