M.M CAPITAL STRUCTURE THEORY
M.M capital structure theory The M.M Capital structure theory presented by two economists Modigliani and Millar in 1950s.They developed the capital structure irrelevance proposition. They hypnotized that is a perfect market, it does not matter what the company capital structure use to finance its operations also market value of firm determined by its earning power and by the risk of its underline assets, and its value is independent of the way its choose to finance to its distribution of dividend. The basic M&M proposition is base on the following assumption:- Ø No tax. Ø No transaction cost. Ø No bankruptcy cost. Ø The cost of borrowing is the same for investors and companies. Ø There is no corporate dividend tax. Ø There is no flotation cost like underline commission, payment of merchants banker’s, advertisement expenses etc. Ø No effect of debt on a company earning before earning and tax. In the real w...



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