Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. briefly explain the assumptions under which capita

Briefly explain the assumptions under which capital structure does not matter.

70.2K

Verified Solution

Question

Finance

Briefly explain the assumptions under which capital structuredoes not matter.

Answer & Explanation Solved by verified expert
3.8 Ratings (764 Votes)
Assumptions under which capital structure does not matter In the MM theory the arbitrage process is made up with an assumption that personal leverage overpowers corporate leverage thus it is a finer substitute of the latter However in practical sense arbitrage process is not realistic Risk perception It is shown in the MM approach that homemade leverage is the substitute of corporate leverage In that case as far as risk is concerned it should have been identical and in such a case it would be immaterial to scrutinize whether a loan is taken by a firm or a proportionate loan is borrowed by the investor himself according to his proportion of share towards the firms debt or not If the risk is not identical then it may be said that homemade leverage is not a substitute of corporate leverage The investments in a levered firm is dissimilar with the investment in the unlevered firm and the risk is also different from this view point as in the most cases it is found that the liability of an investor    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Briefly explain the assumptions under which capital structuredoes not matter.

Other questions asked by students

Q

QUESTION 28 For a 25-year, 5% annual pay bond currently trading at 6%, calculate the approximate convexity...

Finance
Q

3-2-1kathleen wants to know whether height and shoe size are realted in women. She stops and...

Basic Math
Q

Calculate the pH for each case in the titration of 50.0 mL of 0.200 M HClO(aq)0.200...

Chemistry
Q

Which one of the following statements is not true about the motion of a projectile...

Physics
Q

For the following pair of functions find a f g x b f g b...

Basic Math
Q

Maximum Revenue Jesaki Electronics manufactures and sells smartphones per week The weekly price demand and...

Calculus
Q

1 Find the following 11 6 a sin b tan 300 c cos570

Calculus
Q

The carpet cleaning costs for a local company are shown in the table and can...

Algebra
Q

PR 8-3A Bank reconciliation and entries OBJ.S The cash...

Accounting
Q

What all fundamental methods we can use to value a business, Please answer in brief...

Accounting
Q

George secured an adjustable-rate mortgage (ARM) loan to help finance the purchase of his home...

Accounting
Q

Question 9 1 pts Which of the following is more likely to indicate higher supplier...

Finance