Question
The Nobel Prize winning Modigliani & Miller Theory states that a firms capital structure does not matter.It is based on three key assumptions: No income
The Nobel Prize winning Modigliani & Miller Theory states that a firms capital structure does not matter.It is based on three key assumptions:
- No income taxes
- Equal borrowing cost- individuals can borrow at the same interest rate as corporations.
- Perfect markets: There are no bankruptcy, transaction, contracting, or agency costs.
Are these assumptions reasonable?
What are the implications if the assumptions do not hold?
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Personal Financial Planning
Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk
14th edition
978-1305887725, 1305887727, 1305636619, 978-1305636613
