Final answer:
The difference in value between two virtually identical firms can be attributed to their capital structure. M&M theorem states that a firm's value is determined by its earning potential and not by its capital structure, but various factors can impact a firm's value in reality.
Step-by-step explanation:
In this case, the difference in value between the two virtually identical firms can be attributed to their capital structure. According to M&M (Modigliani-Miller) theorem, the value of a firm is determined solely by its earning potential and not by its capital structure. However, in reality, various factors such as taxes, financial distress costs, and agency costs can impact a firm's value. So, even though the firms are virtually identical, their different capital structures can result in different market values.