MM Proposition I & II with Corporate Taxes


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question 1 of 3

The Modigliani-Miller theory, or the MM theory, is known for:

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1. MM Theory Proposition 1 talks about:

2. MM Theory Proposition II talks about:

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About This Quiz and Worksheet

Franco Modigliani and Merton Miller's theory (the MM theory) and its application to corporate taxes are the main ideas of this quiz and worksheet. Questions focus on what the MM theory is known for, and also, what a levered firm controls, as opposed to an unlevered firm.

Quiz and Worksheet Goals

The questions of the quiz are designed to help you review the following topics:

  • MM Theory Proposition I's content
  • The concepts addressed in MM Theory Proposition II
  • The relation between increasing corporate tax and the expected return on equity in a levered firm
  • What is controlled by levered and unlevered firms

Skills Practiced

  • Defining key concepts - ensure that you can name the items addressed in MM Theory Propositions I and II
  • Establishing differences - compare and contrast levered and unlevered firms
  • Information recall - remember what you have learned about corporate tax increases

Additional Learning

For more on the propositions, use the lesson titled MM Proposition I & II with Corporate Taxes. With this at your fingertips, you can explore the additional content profiled below:

  • MM theory assumptions
  • Taxable scenarios
  • No tax scenarios