Question
a)Merton Miller and Franco Modigliani (MM) argued that the value of the firm depends only on the income produced by its assets, not on how
a)Merton Miller and Franco Modigliani (MM) argued that the value of the firm depends only on the income produced by its assets, not on how this income is split between dividends and retained earnings. Explain this argument in detail with the help of theoretical reasoning and supports.
b)How signaling theory of capital structure is different from the signaling theory of dividend policy.
c)Define the term "Capital Structure" and identify various theories of capital structure.
d)Franco Modigliani and Merton Miller's theory of capital structure was based on some strong assumptions, briefly explain all those assumptions.
e)Explain M&M capital structure Irrelevance theory (without Corporate Tax, 1958) and M&M capital structure relevance theory (with Corporate Tax 1963) with the help of "Proposition I & II".
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