Chapter 16, Problem 2CQ

Summary Introduction

To determine: Whether the given information is true or false.

Statement:

In the real world when there are no taxes, no expenses of fiscal distress, and no transaction cost, a company issues some equity to repurchase few debts, rate per share of the company’s stock will increase because the shares are lesser riskier.

Introduction:

Modigliani-Miller theory:

Professors Modigliani and Miller made a research on capital structure theory very intensely. From the analysis, it is found that they formed a capital structure irrelevant proposal.