In considering the arbitrage process in perfect capital markets with no income taxes, the market value of a firm is ____.
A) dependent on its capital structure
B) independent of its capital structure
C) reliant on stock equity prices
D) reliant on management expertise

Question

Quizplus · Accepted Answer

In perfect capital markets with no income taxes, the market value of a firm is independent of its capital structure. This is because investors can arbitrage any differences in value that may arise due to capital structure changes. Therefore, the market value of a firm depends only on its underlying assets and cash flows.

In Considering the Arbitrage Process in Perfect Capital Markets with No