The basic lesson of MM theory is that the value of a firm is dependent upon the:
A)capital structure of the firm.
B)total cash flows of the firm.
C)percentage of a firm to which the bondholders have a claim.
D)tax claim placed on the firm by the government.
E)size of the shareholders claims on the firm.

Question

Quizplus · Accepted Answer

According to MM theory, the value of a firm is determined by its total cash flows, regardless of its capital structure or the claims of bondholders or shareholders. Therefore, the best choice is B, total cash flows of the firm.

The Basic Lesson of MM Theory Is That the Value