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Which one of the following assumptions is NOT a condition under which capital structure does not...

Which one of the following assumptions is NOT a condition under which capital structure does not affect company value? a. The real investment policy of the company is fixed b. There is no tax c. There are no information or transaction costs d. The real investment policy of the company is variable

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Answer #1

Answer:

Option d. The real investment policy of the company is variable

Explanation:

According to Modigliani and Miller Approach, the market value of a company is not effected by its capital structure.

This approach has some of the following assumptions:

1. There are no taxes.

2. There are no transactional costs.

3. Availability of perfect capital markets.

4. There are no floatation costs

5. The firm or company’s investment policy is fixed and does not change over a period of time.

So, option d. which says that investment policy of the company is variable is not a condition under which capital structure does not affect company value.

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