The Modigliani-Miller theorem suggests that the capital structure of a company does not affect its market value in a perfect capital market. However, in reality, firms often make decisions about debt and equity financing. Discuss the key assumptions of the Modigliani-Miller theorem and explain why these assumptions are crucial for its conclusions. Additionally, provide insights into real-world factors that may deviate from these assumptions and influence a company's capital structure decisions. Finally, discuss how these deviations might impact the firm's market value.

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The ModiglianiMiller MM theorem is a proposition in corporate finance that suggests under certain assumptions the capital structure of a company does not affect its market value in a perfect capital m... View the full answer