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Assume there are no taxes or risk of bankruptcy. The assets and operations of two firms are the
same. Firm 1 is all equity financed, while firm 2 uses debt and equity.
a) The firm using debt and equity is more valuable.
b) The all-equity firm is more valuable.
c) Value depends on cash flows, which we don't know.
d) The value of both firms is the same.

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Assume there are no taxes or risk of bankruptcy The assets .pdf

  • 1. Assume there are no taxes or risk of bankruptcy. The assets and operations of two firms are the same. Firm 1 is all equity financed, while firm 2 uses debt and equity. a) The firm using debt and equity is more valuable. b) The all-equity firm is more valuable. c) Value depends on cash flows, which we don't know. d) The value of both firms is the same.