The law of conservation of value implies that
I.the mix of common stock and preferred stock does not affect the value of the firm;
II.the mix of long-term and short-term debt does not affect the value of the firm;
III.the mix of secured and unsecured debt does not affect the value of the firm
A)I only
B)II only
C)III only
D)I, II, and III

Question

Quizplus · Accepted Answer

The law of conservation of value holds that the overall value of a firm remains constant regardless of the specific mix of financing it employs. This implies that the cost of capital is not affected by the proportion of different types of equity or debt in the firm's capital structure. Therefore, all three statements (I, II, and III) are true.

The Law of Conservation of Value Implies That