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1. one will be at greater risk of bankruptcy.
2. the firm with greater financial leverage will have the higher value.
3. this proves that markets cannot be efficient.
4. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
The answer is option4.............
Option4 is the right answer.
4. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
Answer is4 : This will not continue because arbitrage cause the firms to sell at the same value as per MM approach...
Option4--------------------------------------
this proves that markets cannot be efficient
the firm with greater financial leverage will have the higher value.
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