According to the Modigliani-Miller Theorem without taxes, what effect does capital structure have on total firm value?

Explanation

Core Concept: Modigliani and Miller (M&M Proposition I without taxes) stated that in frictionless capital markets, a firm’s market value is determined by its earning power and risk of underlying assets, making capital structure irrelevant. Context/Distractors: When corporate taxes are introduced (M&M Proposition I with taxes), interest tax shields make debt financing advantageous. Exam Tip/Key Fact: Key M&M assumptions include zero transactions costs, no default risk, and symmetric information.