Question

'That personal leverage can replace corporate leverage' is assumed by ____________________.

• A. Traditional Approach
• B. MM Model
• C. Net Income Approach
• D. Net Operating Income Approach

Answer 1

The correct option is B MM Model

M-M Hypothesis assumes that “personal leverage” is a perfect substitute for “corporate” leverage which is not true as we know a firm may have a limited liability whereas there is unlimited liability in case of individuals. For this purpose, both of them have a different footing in the capital market.