Modigliani and Miller (M&M) hypothesized that both dividend policy and capital structure policy are irrelevant in...

Modigliani and Miller (M&M) hypothesized that both dividend policy and capital structure policy are irrelevant in determining the value of a firm. Outline the arguments they used to reach their positions, including the assumptions underlying those arguments. With reference to relevant academic literature, discuss at least one reason why the M&M hypotheses might not hold in practice for BOTH dividend and capital structure policy.

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jeff jeffy answered 2 years ago

Modigliani and Miller demonstrated that capital structures policy is irrelevant. what are the basic for their...

Modigliani and Miller demonstrated that capital structures policy is irrelevant. what are the basic for their arguments. what are their proposition I and II need help please

Modigliani & Miller show that dividend policy can also be considered irrelevant. Yet, unexpected increases in...

Modigliani & Miller show that dividend policy can also be considered irrelevant. Yet, unexpected increases in dividends are often closely followed by price increases, why? To clarify, when a firm pays a dividend the stock price should drop by the amount of the dividend on the ex-dividend date. Let's say a firm has 5 stockholders, each holding 1 share. The firm owns $2,000 in cash and $3,000 in other assets. So the firm is worth $5,000 (it owes no debt)....

Explain the Modigliani & Miller (M&M) capital structure irrelevance principle

Define the capital structure of a firm and relate to the Modigliani and Miller (M&M) theory...

Define the capital structure of a firm and relate to the Modigliani and Miller (M&M) theory of capital structure. Do you feel the M&M theory is correct in its findings on the capital structure of a firm? Why or why not?

Miller and Modigliani also studied dividend policy and determined that in their world of perfect capital...

Miller and Modigliani also studied dividend policy and determined that in their world of perfect capital markets (no taxes, no bankruptcy costs, no asymmetric information) that dividend policy DOES matter. True False When a firm is young and growing, managers tend to have high dividend payout ratios in an attempt to encourage investors to buy the stock. True False Equity provides more financial flexibility for a firm than debt. True False Issuing debt rather than equity will automatically increase a...

1. Explain Modigliani and Miller (M&M) Theory of Capital Structure under three special cases with the...

1. Explain Modigliani and Miller (M&M) Theory of Capital Structure under three special cases with the equations?

A- Discuss the traditional theory relating to capital structure and the approach by Modigliani and Miller

Modigliani and miller demonstrated that "capital structure does not matter" in a perfect capital market. However,...

Modigliani and miller demonstrated that "capital structure does not matter" in a perfect capital market. However, this statement is at odds due to market imperfections. Explain how market imperfections reshape firm's choice of capital structure.

In the miller modigliani theories of capital structure with tax but no bankruptcy costs, how would...

In the miller modigliani theories of capital structure with tax but no bankruptcy costs, how would the WACC and cost of equity (K_e) change if the firm increases leverage?

The capital structure irrelevance theory proposed by Modigliani and Miller (MM) is often criticized to be...

The capital structure irrelevance theory proposed by Modigliani and Miller (MM) is often criticized to be based on very restrictive assumptions which are unrealistic in the world today. However, the theory is still considered extremely important. (word limit 400) a. Why it is important? b. Illustrate three main assumptions made by MM and discuss how the problems are tackled by alternative capital structure theories.

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