The column labeled Company L (for leveraged) indicates the actual levels of debt and equity for the company (Annual Report, 2021). The column labeled Company U (for unleveraged) presents the information as if the company was financed entirely by equity. Some entries have been left empty, and NA means ‘not applicable.

	Company U	Company L
Value of Firm	Euro 1,745.8	Euro 1,745.8
Debt	N/A	Euro 1,325.5
Equity	Euro 1,745.8	Euro 420.3
Earnings before Interest	Euro 160.7	Euro 160.7
Interest Payment		Euro 18.7
Earnings after Interest
Return on equity
Interest rate on debt	N/A
Debt/Equity	N/A
WACC

Using this example, critically examine the Miller–Modigliani Proposition I relating to debt irrelevance and company value, and Proposition II relating to debt irrelevance and the weighted average cost of capital.

Answer rating: 100% (QA)

The MillerModigliani Propositions also known as the MM Propositions are a set of important theorems in corporate finance that were developed by econom... View the full answer