Although the proposition that the value of the firm should be independent of the way in which it is financed may make sense for a firm whose debt-to-capital ratio is relatively stable and similar to the industry's,it is highly problematic when it is applied to highly leveraged transactions.

Question

Quizplus · Accepted Answer

When a firm is highly leveraged, its value is heavily dependent on its financing structure. Changes in the debt-to-capital ratio can significantly impact the value of the firm, making it difficult to argue that the value of the firm is independent of its financing.

Although the Proposition That the Value of the Firm Should