Capital structure is irrelevant if
I.capital markets are efficient;
II.each investor can borrow/lend on the same terms as the firm;
III.there are no tax benefits to debt

Question

Quizplus · Accepted Answer

According to Modigliani-Miller's theorem, under the assumptions of efficient capital markets, equal access to borrowing/lending, and no tax benefits to debt, the capital structure of a firm does not affect its value. Therefore, all three conditions must be met for capital structure to be irrelevant.

Capital Structure Is Irrelevant If