Which of the Following Is Consistent with the Original Formulation

Which of the following is consistent with the original formulation of the Modigliani and Miller Capital Structure Theorem?

A) A firm's composite cost of capital decreases as financial leverage is used.
B) A firm's common stock price falls as financial leverage is used.
C) A firm's composite cost of capital and common stock price are unaffected by the amount of financial leverage used by the firm.
D) A firm's composite cost of capital increases as operating leverage is used.
E) A firm's common stock price rises as operating leverage is used.

Correct Answer:

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