Discuss mm theoretical arguments

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Problem: Modigliani and Miller (M&M) (1958) advanced the idea that, if your objective is to maximise shareholder value, the debt to equity ratio is irrelevant. However, they did comment that this conclusion only held in a world of no taxes. In a world with tax, MM counter argued that it was better to 'gear-up' a company as high as possible.

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Question: Discuss M&M's theoretical arguments in relation to the real-world influences on the gearing level adopted by firms. Does an 'optimum' level of gearing really exist?

Reference no: EM132431124

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