Modigliani and Miller assumptions In 1958 Franco Modigliani and Merton Miller (MM) published a set of...

  

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Modigliani and Miller assumptions In 1958 Franco Modigliani and Merton Miller (MM) published a set of research papers that revolutionized the theory of a corporation's capital structure. In their first research paper, MM proposed a set of assumptions that, on the surface, may seem unrealistic, but these assumptions and MM's algebraic approach provided the first significant attempt to study capital structure theory in a scientific fashion. The original assumptions that were used in MM's first study were changed by MM and other researchers as the theory of capital structure evolved. Which of the following statements are assumptions that MM used in their initial model and research paper? Check all that apply. All investors have the same expectations of a firm's earnings. Stocks and bonds are traded in perfect markets where there are no brokerage costs. Investors and corporations can borrow and lend at the same interest rate. The cost of debt increases with the level of debt. Consider the following statement about a firm's capital structure: The firm's weighted average cost of capital (WACC) is unaffected by its capital structure. Is the preceding statement consistent with the conclusions of Modigliani and Miller's capital structure theory? Yes No Modigliani and Miller assumptions In 1958 Franco Modigliani and Merton Miller (MM) published a set of research papers that revolutionized the theory of a corporation's capital structure. In their first research paper, MM proposed a set of assumptions that, on the surface, may seem unrealistic, but these assumptions and MM's algebraic approach provided the first significant attempt to study capital structure theory in a scientific fashion. The original assumptions that were used in MM's first study were changed by MM and other researchers as the theory of capital structure evolved. Which of the following statements are assumptions that MM used in their initial model and research paper? Check all that apply. All investors have the same expectations of a firm's earnings. Stocks and bonds are traded in perfect markets where there are no brokerage costs. Investors and corporations can borrow and lend at the same interest rate. The cost of debt increases with the level of debt. Consider the following statement about a firm's capital structure: The firm's weighted average cost of capital (WACC) is unaffected by its capital structure. Is the preceding statement consistent with the conclusions of Modigliani and Miller's capital structure theory? Yes No

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Modigliani and Miller were two professors who studies the capital structure theory in detail The stu... View the full answer