Question
Darren Munn recently came back from a conference titled Capital Structure Theory and was extremely excited about what he learned concerning Modigliani and Millers capital
Darren Munn recently came back from a conference titled Capital Structure Theory and was extremely excited about what he learned concerning Modigliani and Millers capital structure propositions. Munn has been trying to choose between three potential capital structures for his firm, MunnMart, and believes that Modigliani and Millers work may guide him in the right direction. The capital structures Munn is considering are:
100% equity.
50% equity and 50% debt.
100% debt.
A) If Munn uses Modigliani and Millers propositions and includes all of their assumptions including the assumption of no taxes, which capital structure is Munn most likely to choose? And why?
B) If Munn uses Modigliani and Millers propositions assuming the firm pays taxes, which capital structure is Munn most likely to choose? And why?
C) At the conference, Munn also learned about the static trade-off theory. If Munn uses the static trade-off approach, which capital structure is Munn most likely to choose?
PLEASE HELP!! THANK YOU!
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