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

Question

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.

Ajay Dutt · Answer

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

Shahbaz Hayder · Answer

Option4 is the right answer.

Shazia Anees · Answer

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

Vijayabharathi Kalyanasundaram (ACMA - INDIA) · Answer

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

Zehab Osman · Answer

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

Lilian Hilario · Answer

this proves that markets cannot be efficient

Saqib Ibrahim · Answer

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