If financial markets were not efficient,it would be easier for firms to:
A) finance investments in a zero-NPV transaction.
B) finance investments in a positive NPV transaction.
C) totally avoid the need for external financing.
D) finance investments in a negative NPV transaction.

Question

Quizplus · Accepted Answer

If financial markets were not efficient, it would mean that there is an opportunity for firms to find undervalued investments with positive NPV. Inefficient markets would create market imperfections, allowing firms to make profitable investments that would not have been possible in efficient markets. The logic of zero-NPV transactions, negative NPV transactions or avoiding the need for external financing, are not impacted by market efficiency.

If Financial Markets Were Not Efficient,it Would Be Easier for Firms