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Discuss Modigliani and Miller's Propositions I and II in a perfect world without taxes nor distress costs. List the basic assumptions, results, and intuition of
- Discuss Modigliani and Miller's Propositions I and II in a perfect world without taxes nor distress costs. List the basic assumptions, results, and intuition of the model. Based on this model, if the original unlevered firm value is $100 million and the CFO is planning to carry out a leveraged recapitalization to a debt equity ratio of 1:1. Whats the levered firm value? If the unlevered equity requires 10% annual return and the debt requires a 6% of annual return, whats the required return for the levered equity?
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