With perfect capital markets, because different choices of capital structure offer a benefit to investors, the capital structure affects the value of a firm.

Question

Quizplus · Accepted Answer

In perfect capital markets, the Modigliani-Miller theorem posits that the capital structure does not affect the value of a firm due to the absence of taxes, bankruptcy costs, and asymmetric information, meaning investors can replicate any financial benefit through personal leveraging.

With Perfect Capital Markets, Because Different Choices of Capital Structure