In at least 50 words or more please give a response to the below post.

The capital structure known as Modigliani and Miller, named after the two professors who developed the capital-structure irrelevance proposition, which believes: In a perfect market it does not matter what capital structure a company uses to finance its operations. The market value of a firm is determined by its earning power and by the risk of its underlying assets, and that its value is independent of the way it chooses to finance its investments or distribute dividends. The Modigliani and Miller proposition is based on a few assumptions such as no taxes, no transaction cost, no bankruptcy cost, cost are equivalent for companies and investors, symmetry of marker information, and no effect of debt on a companys earnings before interest and taxes. So when you remove these key factors that affect the companys finances in the real world, how a company finances its investments doesnt affect its stock price. The pecking order theory focuses on asymmetrical information cost and you must assume that the company prioritized their financing strategy based on the path of least resistance. With the pecking order theory there are two rules for use in the real world; 1. Use internal financing. Use retained earnings before going to investors for money. 2. Issue safe securities first, issue straight debt before issuing convertibles because convertible debt is more risky. It is important for managers or leaders to optimize their capital structure because the value of their company can greatly be affected along with the perception of the company.

Jordon