The capital structure chosen by a firm doesn't really matter because of:
A) Taxes.
B) The interest tax shield.
C) The relationship between dividends and earnings per share.
D) The effects of leverage on the cost of equity.
E) Homemade leverage.

Question

Quizplus · Accepted Answer

Homemade leverage refers to the ability of investors to create their own leverage by borrowing on their own, rather than relying on the company to do so. This concept, introduced by Modigliani and Miller, suggests that the capital structure of a firm does not affect its value because investors can replicate the effects of corporate leverage on their own, making the firm's choice of capital structure irrelevant.

The Capital Structure Chosen by a Firm Doesn't Really Matter