Investment cash flows are independent of financing choices in a ________.

Question

Quizplus · Accepted Answer

In a perfect capital market, financing choices do not have any impact on investment decisions, and investment cash flows are independent of financing choices. This means that the value of a firm is solely determined by the cash flows generated by its investments and is not affected by the way those investments are financed. In contrast, in a market with frictions or a firm with leverage, financing choices can affect investment decisions and cash flows. Therefore, the best choice is B.

Investment Cash Flows Are Independent of Financing Choices in a ________