CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

Which of the following would violate the assumptions necessary for the Modigliani and Miller (MM) capital structure irrelevance proposition?

A. There are no transactions (brokerage) costs.
B. There are no taxes.
C. There are no bankruptcy costs.
D. EBIT can be affected by the use of debt.
Correct Answer: D

For the capital structure irrelevance proposition to hold, EBIT cannot be affected by the use of debt.

User Contributed Comments 4

User Comment
kalps M&M assumptions - EBIT cannot be affected by debt/equity
xyz007 assumption ---debt has no effect on EBIT
sarath Assumptions - Perfect world tax , no BKRPTCY, Symmetric info , EBIT not affected by debt, No transaction costs....
alejandroc No evil in the world, no corrupt politicians, no hunger, no global warming...
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