Asked by Jessica Biddle on Jul 02, 2024
Verified
The MM model is the same as the Miller model,but with zero corporate taxes.
MM Model
The Modigliani-Miller theorem, proposing that in perfect markets, the value of a firm is unaffected by its capital structure.
Miller Model
A model formulated by Merton Miller, part of the Modigliani-Miller theorem, which discusses the irrelevance of capital structure for a company's market value under certain assumptions.
Corporate Taxes
Taxes imposed on the income or profit of corporations, varying widely by country and affecting companies' net income.
- Appreciate the impact and ramifications of corporate and personal taxes on capital structure choices, in the context of the MM and Miller theories.
Verified Answer
IA
Imran Ahmed6 days ago
Final Answer :
False
Explanation :
The MM model refers to the Modigliani-Miller theorem on capital structure, which initially assumes no taxes, bankruptcy costs, or other market imperfections. The Miller model extends the MM framework by incorporating the effects of corporate and personal taxes on the capital structure decision.
Learning Objectives
- Appreciate the impact and ramifications of corporate and personal taxes on capital structure choices, in the context of the MM and Miller theories.