Which of the following is a feature of the 'Modigliani-Miller Theorem'?
A. In perfect capital markets, the value of a firm is independent of its capital structure
B. Dividend policy always affects firm value
C. Capital structure is the only determinant of firm value
D. The value of a firm always rises with higher leverage
Answer: Option A
Solution (By JKSSB Mock Tests)
The Modigliani-Miller theorem asserts that, under perfect capital markets (no taxes, no bankruptcy costs, no asymmetric information), the total value of a firm is independent of whether it is financed by debt or equity.
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