The Modigliani-Miller theorem (without taxes) states that:

A Leverage always increases value

B A firm value is independent of its capital structure in a perfect market

C Debt is always cheaper

D Equity value increases with debt

✓ Correct Answer: Option B

M&M Proposition I (no taxes): in perfect markets (no taxes, no bankruptcy costs, no information asymmetry), firm value is unaffected by how it is financed — capital structure irrelevant.

💡 Why is B) the correct answer?

The correct answer to the question "The Modigliani-Miller theorem (without taxes) states that:" is Option B: A firm value is independent of its capital structure in a perfect market.

The other options — A) Leverage always increases value, C) Debt is always cheaper, D) Equity value increases with debt — are incorrect for this Pre-MBA Exam Prep question. As explained above: M&M Proposition I (no taxes): in perfect markets (no taxes, no bankruptcy costs, no information asymmetry), firm value is unaffected by how it is financed — capital structure irrelevant.

📚 About This Pre-MBA Exam Prep Practice Question

This 4-level Pre-MBA Exam Prep question from the Finance topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free Pre-MBA Exam Prep practice test or use flashcards for spaced repetition review.

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The Modigliani-Miller theorem (without taxes) states that:

✓ Correct Answer: Option B

📚 About This Pre-MBA Exam Prep Practice Question

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