Assertion (A): Arbitrage keeps the cost of capital constant despite change in the capital structure.
Reason (R): It ensures compensating inverse change in cost of equity capital with a change in the cost of debt capital.
A. (A) and (R) both are true and (R) is the correct explanation of (A)
B. (A) and (R) both are true, but (R) is not the correct explanation of (A)
C. (A) is true, but (R) is false
D. (A) is not true, but (R) is true
Answer: Option A
This Question Belongs to Commerce >> Business Finance
The appropriate ratio for indicating liquidity crisis is
A. Operating ratio
B. Sales turnover ratio
C. Current ratio
D. Acid test ratio
A. Net present value method
B. Internal rate of return method
C. Profitablity index method
D. None of the above
A. a-4, b-3, c-1, d-2
B. a-3, b-4, c-1, d-2
C. a-4, b-3, c-1, d-2
D. a-3, b-2, c-4, d-1
Which one of the following assumptions is not included in the James E. Walter Valuation model?
A. All financing by retained earnings only
B. No change in the key variables such as EPS and DPS
C. The firm has finite life
D. All earnings are either distributed as dividends or invested internally immediately
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