Investment cash flows are independent of financing choices in ?

Question

Quizplus · Accepted Answer

In a perfect capital market, investment cash flows are independent of financing choices because there are no transaction costs or other market frictions that would affect the cost of capital or access to financing. This means that the choice of financing will not affect the expected return on investment or the cash flows generated by the investment. In a market with frictions or a firm with leverage, the cost of capital and the availability of financing can be affected by the financing choices, which in turn can affect investment cash flows. In a setting with frictions in investment returns, uncertainties in the expected returns on investment can also affect investment cash flows.

Investment Cash Flows Are Independent of Financing Choices in