Question

Consider a world where the assumptions of the Modigliani Miller Theorem hold and where investors use...

Consider a world where the assumptions of the Modigliani Miller Theorem hold and where investors use the Capital Asset Pricing Model to price securities. In this world we know that leverage has no impact on firm value. Now, researchers at the Wharton Business School discover that the true pricing model is one with three factors. If everyone uses this new model to price securities, firms may find that changes in leverage will affect firm value. True or False.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The Modigliani and Miller Approach derives thar the firm market value could be impacted by the operating income aside from the risk i.e. involved in the investment. It also stated that the firm value is not based on the varieties of the capital structure or the financing decisions

So the firm capital structure would not impact the total cost of capital

Now if there is any changes in leverage so it would not impact the value of the firm

Therefore the given statement is false

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
______     3.      If markets are perfect (and using the other assumptions in Miller and Modigliani (1961)),...
______     3.      If markets are perfect (and using the other assumptions in Miller and Modigliani (1961)), stock prices should fall by the amount of a cash dividend. If so, can a firm make its stockholders wealthier by changing (i.e., increasing or decreasing) its dividend? A. No, under these assumptions, a firm cannot make its stockholders wealthier by changing its dividend. B. Yes, under these assumptions, a firm can make its stockholders wealthier, but only by increasing its dividend. C. Yes,...
According to the Modigliani-Miller theorem, which of the following would have to be true in order...
According to the Modigliani-Miller theorem, which of the following would have to be true in order for capital structure to have no impact upon firm value? I. Taxes have an impact upon the firm's earnings II. The risk of defaulting on debt is nonexistent III. There are no transaction costs of moving from one capital structure to another Select one: A. I only B. I and II only C. I and III only D. II and III only E. I,...
"Risk' can be best defined as on the of the followings:   a. Variability of returns and...
"Risk' can be best defined as on the of the followings:   a. Variability of returns and probability of financial loss b. Chance of financial loss   c. Variability of returns   d. Correlation of relationship among two variables Which of the following statement is NOT TRUE when we argue that the idea of riskless arbitrage is to accumulate the portfolio with following conditions : a. Requires no net wealth invested initially   b. Invest in the long-term securities only where risk will be...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described itself as "a quarterly survey of business leaders from across the globe … surveying 11,500 businesses in 40 economies across the globe on an annual basis." 1 According to the 2011 IBR, the Asia Pacific region had a higher percentage (27 percent) of female chief executive officers (CEOs) than Europe and North America. Japan is the only Asia Pacific region exception. The report further...
read Seasons of Love chapter:measuring a child's life after suicide. please answer the questions : reflect...
read Seasons of Love chapter:measuring a child's life after suicide. please answer the questions : reflect on what happens to the families when there is a suicide in the family, based on the Seasons of Love chapter...how should people be told? What details are best left unshared? below is the story These theories may have a certain face-validity, but they often neglect environmental or contextual factors that are innate to answering the question of “why” a person might engage in...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation....
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation. case:    W17400 APIGEE: PEOPLE MANAGEMENT PRACTICES AND THE CHALLENGE OF GROWTH Ranjeet Nambudiri, S. Ramnarayan, and Catherine Xavier wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT