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    Modigliani Miller approach,creation of value

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    What are some of the differences between the theoretical M&M (Modigliani-Miller )propositions and the practical applications for managers? Where do managers say value is created?

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    What are some of the differences between the theoretical M&M (Modigliani-Miller) propositions and the practical applications for managers? Where do managers say value is created?

    The theoretical propositions of Modigliani Miller is the value of the two firms will be same irrespective of the changes in the capital structure provided the two firms must have same earnings before interest and taxes and the following assumptions should exist to make this proposition valid. The assumptions are:
    1. Existence of perfect capital market.
    2. Investors have the same expectations about the market value of the firm.
    3. Firms within the industry are expected to have same risk.
    4. Dividend payout ratio is 100% and the there is no retained ...

    Solution Summary

    The answer contains the theoritical propositions and assumptions of modigliani-miller theory and also the answer for how the managers can say that the value is created.

    $2.19

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