Capital Structure Is Irrelevant If

question 37

Multiple Choice

Capital structure is irrelevant if:

• A) the capital markets are perfect
• B) each investor holds a fully diversified portfolio
• C) each investor holds the same proportion of debt and equity of the firm
• D) all of the above

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Definitions:

P/E Ratio

The price-to-earnings ratio is a valuation measure comparing the current share price of a company to its per-share earnings.

EPS

Earnings per share, a measure of a company's profit divided by the outstanding shares of its common stock.

Market Portfolio

An investment portfolio that ideally includes all available assets in the market, weighted by their market capitalization, aiming to mimic the market's overall returns.