Which one of these statements is correct?
A)Only the nonmarketed claims of a firm can be bought and sold.
B)An increase in a firm's marketed claims will increase the total value of a firm.
C)The total value of a firm is independent of the firm's cash flows.
D)Managers try to maximize both marketed and nonmarketed claims in order to maximize total firm value.
E)The value of a firm's marketed claims can change with changes in the firm's capital structure.

Question

Quizplus · Accepted Answer

The value of a firm's marketed claims, such as common stock or bonds, can be affected by changes in the firm's capital structure, such as issuing more shares or taking on more debt. This is because changes in the capital structure can impact the risk and return profile of the firm, which can affect the value of the marketed claims. The other statements are incorrect. Nonmarketed claims, such as a firm's reputation or employee morale, cannot be bought and sold. An increase in marketed claims does not necessarily increase total firm value. The total value of a firm is dependent on its cash flows. While managers may strive to maximize both marketed and nonmarketed claims, their ultimate goal is to maximize overall firm value.

Which One of These Statements Is Correct