Which of the following assumptions form the basis of the MM Hypothesis in stating irrelevance of capital structure regarding weighted average cost of capital remaining constant?
A. Perfect capital markets
B. Heterogeneous risk class
C. Absence of taxes
D. Full dividend pay-out
E. Same expectation of firm’s EBIT with which to evaluate the value of a firm
Choose the correct answer from the options given below:

Correct option is B

The Modigliani-Miller (MM) Hypothesis, also known as the capital structure irrelevance principle, is a theory that suggests that under certain assumptions, the value of a firm is independent of its capital structure. The assumptions of the MM Hypothesis are:
1. No taxes: The MM Hypothesis assumes that there are no taxes, including corporate taxes or personal taxes on dividends or capital gains.
2. No transaction costs: The MM Hypothesis assumes that there are no costs associated with issuing or trading securities.
3. Perfect capital markets: The MM Hypothesis assumes that capital markets are perfect, which means that there are no barriers to the flow of information, no investors have an advantage over others, and there are no restrictions on trading.
4. Homogeneous expectations: The MM Hypothesis assumes that all investors have the same expectations regarding future cash flows and risk.
5. Constant returns to scale: The MM Hypothesis assumes that the firm's production function exhibits constant returns to scale.
6. Financing and investment decisions are separate: The MM Hypothesis assumes that a firm's financing decision (i.e., capital structure) is separate from its investment decision (i.e., which projects to undertake).
7. Rational behaviour: The MM Hypothesis assumes that all market participants act rationally to maximize their wealth.