In order to show that capital structure is irrelevant, we need which of the following assumptions?
A)Perfect markets
B)No taxes
C)Risk-free debt
D)All of the above are critical.

Question

Quizplus · Accepted Answer

In order to show that capital structure is irrelevant, we would need all three assumptions - perfect markets, no taxes, and risk-free debt. This is because these assumptions allow us to isolate the effect of capital structure on the value of the firm from other factors such as market imperfections, tax shields, and default risk. Without these assumptions, the relevance of capital structure would be difficult to determine. Therefore, all three assumptions are critical to the argument that capital structure is irrelevant.

In Order to Show That Capital Structure Is Irrelevant, We