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Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M?

 

 

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.

Project Finance Accounting Cash Flow Forecasting Financial Systems Feasibility Studies
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Question ajoutée par Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
Date de publication: 2015/06/27
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Ajay Dutt
par Ajay Dutt , Senior Accountant , Concept Zone Group of Companies

The answer is option4.............

Shahbaz Hayder
par Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

Option4 is the right answer.

Shazia Anees
par Shazia Anees , Assistant Manager Finance , Arham Trading Company

4. this will not continue because arbitrage will eventually cause the firms to sell at the same value.

Vijayabharathi Kalyanasundaram (ACMA - INDIA)

Answer is4 : This will not continue because arbitrage cause the firms to sell at the same value as per MM approach...

Zehab Osman
par Zehab Osman , Accountant , Aldar Consultancy Co.

Option4--------------------------------------

Lilian Hilario
par Lilian Hilario , Clerical , Clarion Manufacturing Corp.,of the Phils.

this proves that markets cannot be efficient

Saqib Ibrahim
par Saqib Ibrahim , Senior Accountant , Arabian Industries LLC

 the firm with greater financial leverage will have the higher value.

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