Drawbacks or criticism of mm approach, Financial Management

Assignment Help:

Q. Drawbacks or Criticism of MM Approach?

Risk Perceptions of personal as well as corporate leverages are different: - It is incorrect to presume that 'personal leverage' is a perfect substitute for 'corporate leverage'. Liability of an investor is incomplete in corporate enterprises whereas the liability of an individual borrower is unlimited as even his personal property is likely to be used for payment to lenders.

Therefore the risk to the individual borrower is higher.

(2) Difference in cost of borrowing by the firm and individuals: - The supposition that firms and individuals can borrow at the same rate of interests doesn't hold good in practice.

(3) Convenience: - The corporate borrowing is further convenient to the investor because the formalities and procedures in borrowing are to be observed by corporate.

(4) Institutional Restrictions: - Institutional restrictions rise in the way of a smooth operation of arbitrage process.


Related Discussions:- Drawbacks or criticism of mm approach

What is institutional finance, What is Institutional Finance A natio...

What is Institutional Finance A nation's economic structure comprise a number offinancial institutions, like banks, pension funds, insurance companies, creditunions. These i

Define the risk of cost of capital, Risk of cost of capital A straight...

Risk of cost of capital A straightforward assumption of traditional cost of capital analysis is that firm's business and financial risk are unaffected by acceptance and financ

Sources of risk, Define Sources of risk with types???? how can we analys...

Define Sources of risk with types???? how can we analysis the risk in bussiness?? plese help!!!!!

Saving and lone assocition, what is saving and lone function in ethiopian c...

what is saving and lone function in ethiopian context

Important areas of personal financial management, Gary and Joyce Yau, both ...

Gary and Joyce Yau, both 30, last month bought their dream house in London, Ontario. The purchase price was $450,000 plus addition fees such as taxes, legal fees, administration fe

Coupon interest payment, An investor receives periodic interest...

An investor receives periodic interest payments at specified intervals till the date of holding or maturity. However, the holder of zero coupon

Marginal weighting system, uses and limitations of the marginal weighting s...

uses and limitations of the marginal weighting system

banking in business, a. Talk about the role of banking in business.  b....

a. Talk about the role of banking in business.  b. Set out the precise role played by Investment Banking and the challenges of corporate governance.

Virements, what is the relevance of virements to public sector accounting

what is the relevance of virements to public sector accounting

find the weighted average cost of capital, Given the following information...

Given the following information, find the Weighted Average Cost of Capital (WACC).  Assume the corporate tax rate is 35%, and give an answer based on market values of debt and equi

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd