The Modigliani and Miller Capital Structure Theorem, in its original form
A) uses unrealistic assumptions.
B) provided important insights into capital structure policy.
C) concludes that how a firm is financed is not important.
D) all of the above.

Question

Quizplus · Accepted Answer

The Modigliani and Miller Capital Structure Theorem uses unrealistic assumptions, such as perfect capital markets and no taxes or bankruptcy costs. However, the theorem provided important insights into capital structure policy by demonstrating that the value of a firm is determined by its cash flows and not by how it is financed. Therefore, the theorem concludes that in a perfect market, how a firm is financed is not important.

The Modigliani and Miller Capital Structure Theorem, in Its Original