The nobel prize winning modigliani and miller theory

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The Nobel Prize winning Modigliani and Miller Theory states that a firm’s capital structure does not matter. It is based on three key assumptions:

No income taxes

Equal borrowing cost- individuals can borrow at the same interest rate as corporations.

Perfect markets: There are no bankruptcy, transaction, contracting, or agency costs.

Are these assumptions reasonable?

What are the implications if the assumptions do not hold?

Reference no: EM131305087

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