M&M Proposition 1: According to M&M Proposition 1, what transaction do you need to take in order to undo the restructuring?

Question

Quizplus · Accepted Answer

According to M&M Proposition 1, the value of the firm is independent of its capital structure. Therefore, to undo the restructuring, you would need to buy back the amount of debt that was issued in the restructuring (which was $22.50 worth), as this would bring the firm back to its original capital structure. The other options (selling stock or buying a smaller amount of debt) would not necessarily result in undoing the restructuring.

M&M Proposition 1: According to M&M Proposition 1, What Transaction