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

Why too little debt is as undesirable as is too much debt, If an optimal ca...

If an optimal capital structure exists, what are the reasons why too little debt is as undesirable as is too much debt? Too little debt may be as unwanted as too much debt for

Explain about the corporate reorganisations, Corporate Reorganisations ...

Corporate Reorganisations This topic deals principally with mergers and takeovers. It's very highly examinable. The discussion areas overlap with business strategy paper so don

Calculation of weighted average cost of capital, Calculation of weighted av...

Calculation of weighted average cost of capital (WACC) Market values Market value of equity = 5m × 4.50 = $22.5 million Market value of preference shares = 2.5m × .0762 =

Contingency planning, Contingency Planning:   Once the events are eval...

Contingency Planning:   Once the events are evaluated and categorised, and the levels of risk attaching to them have established.  The organisation should then commence pla

How do we estimate expected incremental cash flows, How do we estimate expe...

How do we estimate expected incremental cash flows for a proposed capital budgeting project? We valuate expected incremental cash flows for a proposed project by valuating the

Ledge ac count, Ask question #Minimum 100 words accepted

Ask question #Minimum 100 words accepted

Personnel characteristics, Workers interest in participation is also influe...

Workers interest in participation is also influenced by certain personnel or group characteristics. For example several research studies have shown that both very low and very high

Management of working capital, Q. Management of Working Capital? Workin...

Q. Management of Working Capital? Working capital, in general practice, refers to the excess of current assets over current liabilities. Management of working capital therefore

Government bonds, Government securities are the most important and un...

Government securities are the most important and unique financial instruments in the financial markets of any economy. Government of India Securities (GOI Sec) in

Determine the term- profit before taxation and interest, Determine the term...

Determine the term- Profit before taxation and interest Profit before taxation and interest can also be used here in addition to profit for the period. Whichever figure is tak

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