A financial restructuring
A) will not change the value of a firm's real assets under M&M Proposition 1.
B) includes financial transactions that change the capital structure of the firm.
C) means that a firm has issued equity to retire debt.
D) Both A and B.

Question

Quizplus · Accepted Answer

M&M Proposition 1 states that in a world without taxes, bankruptcy costs, and asymmetric information, the value of a firm is not affected by its capital structure. Financial restructuring involves transactions that alter the firm's capital structure, such as issuing equity or debt, but does not necessarily mean that equity is issued specifically to retire debt.

A Financial Restructuring