Modigliani Miller Theorem - Capital Stucture

Essay by robdado2University, Master'sA+, September 2006

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Since business has been in existence, management has been placed in the dilemma of increasing the total value of their company and in determining what way this is measured. The question manager's face is there a need for debt financing and/or will there be a profit, if so, what are the pros and cons for these decisions? The type of company policy in regards to payout or the financial decisions would not necessarily matter in a perfect market, and a company cannot simply rearrange the total value of their securities by filtering their cash into different sectors of the company. If a company or organization is going to measure their assets, they need to be assets that are based on real time and are measures of security. The make up of an organization's capital design are irrelevant since a company's investments are considered a given and obvious variable of the organization.

These are just some of the aspects of the theory of Modigliani-Miller introduce to us that was initially presented in 1958. This team will address and discuss the Propositions I and II.


I made some changes in the sentence structures and tenses, which are highlighted in red. I thought some sentences had some awkward sentence structure and might have been missing some words, so I made some changes for your review .




What are the Modigliani-Miller Propositions I and II, and who are M&M? What sort of impact does this theory have within the business finance sector? Merton Miller and Franco Modigliani turned the finance world on its ear with their theory that dealt with a company's decisive measures to increase capital and cash flow by the use of debt or equity in order to finance its investments would not necessarily matter for the...