Equity become riskier due to increase in firm leverage

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Reference no: EM132072731

Modigiani and Miller theory states that, in a perfect market, although both debt and equity become riskier due to an increase in the firm’s leverage, both the firm’s value and risk remain exactly the same. Conceptually, what would it take for the firm to become worth more and/or be safer even when both debt and equity become riskier due to an increase in the firm’s leverage?

Reference no: EM132072731

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