Which one of these statements is correct?
A)Only the nonmarketed claims of a firm can be bought and sold.
B)An increase in a firm's marketed claims will increase the total value of a firm.
C)The total value of a firm is independent of the firm's cash flows.
D)Managers try to maximize both marketed and nonmarketed claims in order to maximize total firm value.
E)The value of a firm's marketed claims can change with changes in the firm's capital structure.

Question

Quizplus · Accepted Answer

The value of a firm's marketed claims, such as stocks and bonds, can be affected by changes in the firm's capital structure, such as issuing more debt. This can impact the perceived riskiness of the firm and therefore affect the value of its marketed claims. The other statements are not correct. Nonmarketed claims cannot be bought or sold, an increase in marketed claims may not necessarily increase total firm value, the total value of a firm depends on its cash flows, and managers try to maximize total firm value by balancing various claims.

Which One of These Statements Is Correct