Assuming a Perfect Market, a Corporation Can Create Value Only

question 60

Multiple Choice

Assuming a perfect market, a corporation can create value only by

• A)paying out dividends to its shareholders
• B)making changes to its capital structure
• C)splitting its stock
• D)None of the above actions will create value.

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Definitions:

Merger

The joining of two firms to form a single firm.

Acquisition

The process by which one company purchases most or all of another company's shares to gain control.

Debt Capacity

The maximum amount of debt a business or entity can borrow without reaching financial distress.

Diversification Benefits

Advantages obtained from investing in a variety of assets, which helps to reduce risk by spreading exposure across different investments.