Select all that apply

Question

In the absence of taxes, the value of a firm is the same with debt financing as it is with equity financing because Blank______.

Multiple select question.

debt financing is actually better than equity financing.

the asset to be financed is the same

MM demonstrated that debt financing is neither better nor worse than equity financing in the absence of taxes

equity financing is actually better than debt financing

Answer 1

In the absence of taxes, the value of a firm is the same with debt financing as it is with equity financing because:

• the asset to be financed is the same

• MM demonstrated that debt financing is neither better nor worse than equity financing in the absence of taxes

The other options ("debt financing is actually better than equity financing" and "equity financing is actually better than debt financing") are not applicable in this context.