FIN 304 Final exam ACTUAL UPDATED QUESTIONS AND CORRECT ANSWERS
Modigliani and Miller (M&M) The case of perfect markets (mainly no taxes and no costs of financial distress
A Firm cannot change the total value of its securities by TRUE
splitting its cash flows into different streams. Therefore
financing decisions do no matter in perfect market and
MARKET VALUE OF THE FIRMS IS INDEPENDENT OF ITS
CAPITAL STRUCTURE
When a company issues debt, what source of risk is Financial risk and that's borne by the equity holders.
created? M&M maintained that that's correct but it does not change RA
Ra= Expected operating income/value of all securities
M&M show that although Ra stays constant, Re increases true
linearly with the debt to equity ratio
Modigliani and Miller (M&M) The case of perfect markets (mainly no taxes and no costs of financial distress
A Firm cannot change the total value of its securities by TRUE
splitting its cash flows into different streams. Therefore
financing decisions do no matter in perfect market and
MARKET VALUE OF THE FIRMS IS INDEPENDENT OF ITS
CAPITAL STRUCTURE
When a company issues debt, what source of risk is Financial risk and that's borne by the equity holders.
created? M&M maintained that that's correct but it does not change RA
Ra= Expected operating income/value of all securities
M&M show that although Ra stays constant, Re increases true
linearly with the debt to equity ratio
