Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M

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Q. Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M

(A) one will be at greater risk of bankruptcy.
(B) the firm with greater financial leverage will have the higher value.
(C) this proves that markets cannot be efficient.
(D) this will not continue because arbitrage will eventually cause the firms to sell at the same value.

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✅ Correct Answer: (D) this will not continue because arbitrage will eventually cause the firms to sell at the same value.

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