Modigliani and Miller propose that debt policy will not affect value, as managers cannot use leverage to improve company value. Explain both their ideas and their assumptions. 

Describe how investors will substitute personal borrowing for company borrowing, to maximise returns. 

Outline Proposition Explain how it establishes the relationship between level of borrowing, risk, and expected return on investment.

 

Modigliani and Miller propose that any decision regarding the amount of debt capital will not impact on company value. Outline the assumptions behind their proposal, and explain how a trade-off between leverage and risk will ensure that share price is unaffected. 

Conclude with a comparison between their ideas and the traditional view of borrowing and the cost of capital.

The weighted average cost of capital formula, describe how company taxes will impact on Modigliani and Miller's proposal regarding borrowing and cost of capital?