Asked by Bohdan Simakov on May 30, 2024
Verified
According to MM,in a world without taxes,the optimal capital structure for a firm is approximately 100% debt financing.
Capital Structure
The mix of a company's long-term debt and equity that it uses to finance its operations and projects.
MM
Often refers to Modigliani-Miller propositions, theoretical principles in corporate finance regarding capital structure irrelevance in perfect markets.
Debt Financing
Debt financing involves raising capital through borrowing money that must be repaid over time, typically with interest, from external sources like banks or through issuing bonds.
- Acquire insight into the influence of financial elements including financial distress, agency costs, and bankruptcy costs on a corporation's optimal capital structure.
- Recognize the assumptions and limitations of theoretical models such as the MM and Miller models, especially concerning taxes and bankruptcy costs.
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Learning Objectives
- Acquire insight into the influence of financial elements including financial distress, agency costs, and bankruptcy costs on a corporation's optimal capital structure.
- Recognize the assumptions and limitations of theoretical models such as the MM and Miller models, especially concerning taxes and bankruptcy costs.
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