Topic: Modigliani and Miller: A Challenge to Capital Budgeting Strategies

Financing corporate purchases and overall capital budgeting usually require the finance manager to assess tax rates, dividend payout policy, weighting of capital sources, and more. However, the Modigliani and Miller propositions state that, in most situations, it does not matter if the firm's capital is raised by issuing stock or selling debt.

As a student, you might assume studies of capital budgeting strategies will no longer be reviewed in coursework.

Before coming to that conclusion, please discuss the principles presented by Modigliani and Miller, what they are trying to prove within their theory, and if you agree or disagree with the theory's premise.