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Which statement below best summarizes Modigliani and Miller Proposition Two? Select one: A. The value...

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Finance

Which statement below best summarizes Modigliani and Miller Proposition Two?

Select one:

A.

The value of a firm depends on its net operating profits over time and the discount rate used to calculate the present value of those profits and not on the mix of debt and equity financing that it employs.

B.

The cost of debt is usually cheaper than the cost of equity, so firms can minimize their weighted average cost of capital and thereby maximize firm value by substituting debt for equity, at least up to some point.

C.

When a firm substitutes relatively inexpensive debt for relatively expensive equity, the cost of the remaining equity rises to an extent such that there is no effect of the change in the capital structure on the weighted average cost of capital.

D.

When a firm borrows more money, the cost of debt will rise.

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