Question

The Modigliani-Miller model is behavioural justification of the NOI approach to the capital structure theory. Explain with a practical example.

Answer 1

Answer:

I hope you like this answer

Explanation:

The Modigliani and Miller approach to capital theory, devised in the 1950s, advocates the capital structure irrelevancy theory. This suggests that the valuation of a firm is irrelevant to the capital structure of a company. Whether a firm is high on leverage or has a lower debt component has no bearing on its market value. Rather, the market value of a firm is solely dependent on the operating profits of the companyThis approach was devised by Modigliani and Miller during the 1950s. The fundamentals of the Modigliani and Miller Approach resemble that of the Net Operating Income Approach. 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. Whether a firm is high on leverage or has a lower debt component in the financing mix has no bearing on the value of a firm.