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

How does accounts receivable factoring work, How does accounts receivable f...

How does accounts receivable factoring work?  What are the benefits to the two parties involved?  What are the risks? Factoring is when one firm trade accounts receivable (AR)

Valuation of bonds and shares, three years ago, SSSG Ltd. issued 10 years $...

three years ago, SSSG Ltd. issued 10 years $1000 bonds with a 7% coupon rate paid semi-annually, at par value. the market currently requires a 9% yield. what was the price of bond

International finance problem, International Finance Problem Analyze th...

International Finance Problem Analyze the attached case, along the lines indicated by the Assignment questions listed at the end of the case.  Since you will have plenty of tim

Calculate the portfolio weight, Assume Intel's stock has an expected return...

Assume Intel's stock has an expected return of 26% and a volatility of 50%, while Coca-Cola's has an expected return of 6% and volatility of 25%. If these two stocks were perfectly

Estimate the money in dollars have lost or gained, In January 2010 your fir...

In January 2010 your firm bought from an Italian firm goods payable in Euros worth EU2,000,000.  Suppose that at that time the exchange rate of the Euros was 1EU=$1.25.  Because th

Definition of hedge fund, Definition The term "Hedge Fund" is a colloqu...

Definition The term "Hedge Fund" is a colloquialism derived from the expression "to Hedge one's bets", which means to limit the possibility of loss on a speculation by betting

What do you meant by negative externalities, Question 1: i) Is ther...

Question 1: i) Is there a stable and inverse link between unemployment and inflation? ii) The government announces that expansionary policies will be enacted in a view

Advantage of profitability index method, Q. Advantage of Profitability Inde...

Q. Advantage of Profitability Index method? Advantage of PI method:- (i) Similar to the other DCF techniques the PI method as well takes into account the time value of money

What are the objectives of the insurance companies, What are the objectives...

What are the objectives of the Insurance Companies? Insurance companies: The main objective of insurance companies is to prevent individuals and firms (termed as policy-h

Operating cycle, Explain the operating cycle of a vegetable growing busines...

Explain the operating cycle of a vegetable growing business

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