In the absence of taxes,the capital structure chosen by a firm doesn't really matter because of:
A)taxes.
B)the interest tax shield.
C)the relationship between dividends and earnings per share.
D)the effects of leverage on the cost of equity.
E)homemade leverage.

Question

Quizplus · Accepted Answer

In the absence of taxes, the capital structure chosen by a firm doesn't really matter because investors can create their own leverage by borrowing on their own, a concept known as homemade leverage. This means that the firm's decision on leverage does not affect the overall cost of capital or the value of the firm, aligning with the Modigliani-Miller theorem under no-tax conditions.

In the Absence of Taxes,the Capital Structure Chosen by a Firm