Modigliani and Miller put forward the idea that the choice of capital structure
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Modigliani and Miller put forward the idea that the choice of capital structure

Question 6

Modigliani and Miller put forward the idea that the choice of capital structure is irrelevant to the value of the firm.

Required:

a) Describe the Modigliani and Miller capital structure theories as fully as possible. Include assumptions made and any key propositions made by Modigliani and Miller.

b) Critically evaluate this theory with regard to its relevance to the real world.


Hint
Accounts and Finance"Modigliani-Miller theory – states that the market values of firms are irrelevant to their capital structure. In this case, the market value of levered enterprises is equal to that of unlevered enterprises when they all belong to the same class of risks.The assumptions made by this theorem are:a) No Transaction Costsb) Equal Borrowing Costsc) Handling of Excess Cash"...

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