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Capital structure is understood as the relationship between equity and debt capital of the company. Does capital structure affect the company’s main settings, such as the cost of capital, profit, value of the company, and the others, and, if it affects, how?
28 sty 2017 · Purpose of this study is to review various capital structure theories that have been proposed in the finance literature to provide clarification for the firms’ capital structure decision.
Modigliani and Miller advocate capital structure irrelevancy theory, which suggests that the valuation of a firm is irrelevant to the capital structure of a company [4]. Moreover, the...
By using the valuation and capital structure approach with several assumptions necessary to be made, the author has found out that the Modigliani Miller theories of capital structure do hold and are accurate for those given sample companies in representative to an industry.
26 sty 2023 · The review examines the state of the capital structure and capital cost theory from the middle of the last century, when the first quantitative theory was created, to the present.
Modigliani-Miller Theorem. Proposition (1958): Capital structure irrelevance. — Intuition: ∗ Value additivity. If operating cashflows are fixed, value of the pie. unaffected by split-up of the pie. — Assumptions: ∗ No taxes. ∗ No costs of financial distress / no other transaction costs. ∗ Fixed, exogenous operating cashflows.
One of the two main theories of capital cost and capital structure is the theory of Nobel Prize winners Modigliani and Miller (1958, 1963, 1966). In this chapter, we describe the main results of this theory. Under the capital structure, one understands the relationship between equity and debt capital of the company.
