Modigliani and Miller show that the value of a firm is ____ capital structure given perfect capital markets and no corporate income taxes.
A) maximized by having no debt in the
B) independent of
C) maximized by having an optimal
D) dependent on the

Question

Quizplus · Accepted Answer

According to Modigliani and Miller, in a world of perfect capital markets and no corporate income taxes, the value of a firm is independent of its capital structure. This is known as the Modigliani-Miller theorem. In such an ideal world, investors are assumed to be rational and pricing of securities is efficient, which means that the cost of equity and debt financing for a firm would be the same regardless of the firm's capital structure. Therefore, the choice is B – independent of.

Modigliani and Miller Show That the Value of a Firm