In the context of the M&M Irrelevance theorem, in a world with no taxes and no bankruptcy costs,
A)the firm's value is unaffected by capital structure.
B)the firm should maximize the value of the firm by maximizing the firm's debt.
C)the firm should borrow to the point where the marginal benefits of debt equal the marginal costs.
D)the firm cannot make a decision about the optimal capital structure with the existing information.

Question

Quizplus · Accepted Answer

In a world with no taxes and no bankruptcy costs, the M&M Irrelevance theorem states that the firm's value is unaffected by capital structure. This means that whether the firm is financed entirely by equity or by a mix of equity and debt, the value of the firm remains the same. Therefore, the optimal capital structure does not matter in this scenario.

In the Context of the M&M Irrelevance Theorem, in a World