“Modigliani and Miller (MM) suggested that in a perfect world with no taxes or bankruptcy cost,...

“Modigliani and Miller (MM) suggested that in a perfect world with no taxes or bankruptcy
cost, the dividend policy is irrelevant. They proposed that the dividend policy of a company
has no effect on the stock price of a company or the company’s capital structure.” (Ani 2016)
Based on the above statement you are required write an essay on dividend irrelevance and
capital structure theories that has been originally advanced by Franco Modigliani and Merton
H. Miller (Modigliani and Miller 1958). In your demonstration you must critically reflect on
corporate tax consideration and firm values in contemporary world.

Expert Solution

ModiGilani and Miller has given the approaches and the theories in the financial management, and has explain the capital structure theories. According to ModiGilani and Miller the investors are the a relevant to the company's dividend policy in which they can create their own cash flows and the higher return are the investors care for the company of the organisation they can make the investment or the return with the investing or selling a part of the sell not the whole but the part of the share.

and in same way in the case of corporate income tax and personal income taxes taxes to not exist it is the one of the assumption of the modigliani and Miller, when the shares are issued to the shareholders information is is really available to all the investors and the information provided them about the forms future prospect is available to the company's managers as well as investors and hear the leverage come to the zero impact on the cost of capital of the company .

And with the suggestion of ModiGilani and Miller conclusion comes that they believe only the company's ability to earn the money and how much risk the organisation can take and risky activities they can do and how many activities can be held by the organisation or a company that has a impact on the value of the company. It increase the Goodwill of the company. ModiGilani and Miller conclusion has a true stand for the suggestion but till the date they do not stand true in the practical word because the organisations and the companies has not yet started to follow their theories, Organisation are running as the market demand and they supply accordingly and the motive of every organisation and the company today is only to earn money.

jeff jeffy answered 1 year ago

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