Under the MM theorem,capital structure will not change the total value of a firm because:
A)EPS is not affected by leverage.
B)two firms with the same assets but different capital structures are not considered perfect substitutes.
C)dividend policy is irrelevant.
D)perfect substitutes should not sell at different prices in the same market.

Question

Quizplus · Accepted Answer

Under the Modigliani-Miller theorem, in a perfect market, two firms with the same assets but different capital structures should be perfect substitutes and should not sell at different prices, meaning capital structure does not affect the firm's total value.

Under the MM Theorem,capital Structure Will Not Change the Total