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

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Finance

The capital structure irrelevance theory proposed by Modiglianiand Miller (MM) is often criticized to be based on very restrictiveassumptions which are unrealistic in the world today. However, thetheory is still considered extremely important. (word limit400)

a. Why it is important?

b. Illustrate three main assumptions made by MM and discuss howthe problems are tackled by alternative capital structuretheories.

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The Modigilani and Miller theory of capital structure is one of the most important theories of capital structure It has acted as a base for many theories and has helped the revolution of corporate finance The first theory was created for an ideal environment and perfectly efficient markets only partially real The theorem stated that market value of two identical firms will remain the same irrespective of their    See Answer
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The capital structure irrelevance theory proposed by Modiglianiand Miller (MM) is often criticized to be based on very restrictiveassumptions which are unrealistic in the world today. However, thetheory is still considered extremely important. (word limit400)a. Why it is important?b. Illustrate three main assumptions made by MM and discuss howthe problems are tackled by alternative capital structuretheories.

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