Relationship between required returns on debt and on equity

Reference no: EM131328303

1. Deriving from the conclusion of Proposition I, what is the crux of M&M Proposition II? What is the natural relationship between the required returns on debt and on equity that results from Proposition II?

2. In what way did M&M change their conclusion, regarding capital structure choice, with the additional assumption of corporate taxes? In this context, what composes the difference in value between levered and unlevered firms?

Reference no: EM131328303

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