Modigliani-Miller theorem (See Chapter 33 of the Vernimmen) Modigliani-Miller theorem, put forward in 1958, showed that in perfect markets and in the absence of taxation there is no such thing as an optimal capital structure; the overall cost of capital remains the same regardless of the firm's debt policy. Thus, the value of the levered company is equal to the value of the unlevered company. This is the first proposition of the Modigliani-Miller theorem. Second proposition of the Modigliani-Miller theorem states that the cost of equity in a world without taxes rises with the increase in leverage. It can be computed as follows: KE = K0 + (K0-KD) x VD/VE, where KE is the cost of equity, K0 is the cost of equity of an all-equity financed company, KD is the cost of debt, VD is the value of debt, and VE is the value of equity. Modigliani-Miller theorem (See Chapter 33 of the Vernimmen) Modigliani-Miller theorem, put forward in 1958, showed that in perfect markets and in the absence of taxation there is no such thing as an optimal capital structure; the overall cost of capital remains the same regardless of the firm's debt policy. Thus, the value of the levered company is equal to the value of the unlevered company. This is the first proposition of the Modigliani-Miller theorem. Second proposition of the Modigliani-Miller theorem states that the cost of equity in a world without taxes rises with the increase in leverage. It can be computed as follows: KE = K0 + (K0-KD) x VD/VE, where KE is the cost of equity, K0 is the cost of equity of an all-equity financed company, KD is the cost of debt, VD is the value of debt, and VE is the value of equity. See all terms in the dictionary of finance To know more about it, look at what we have already written on this subject :

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Definitions of terms begining with the same letter as "Modigliani-Miller theorem" :

MBI MBO MIRR MLA MOU MTN MTN programme MVA Management buy-in Management buy-out, MBO Management fee Manager, managing bank Managing bank Mandated lead arranger, MLA Mandatory convertible bonds Mandatory convertible preferred stock Mandatory offer Margin Margin analysis Margin call Marginal rate of return Market Market capitalisation Market expansion Market financing Market growth Market in equilibrium Market indicators of value creation

Market maker Market multiples Market plane Market portfolio Market premium Market return Market risk Market risk premium Market risk – strategic positioning of the company Market share Market value Market value added, MVA Market-based economy Marketable securities Mass production Master credit agreement Matching hypothesis Matching principle Material adverse change clause Maturity Maturity mismatch McDonough ratios Medium term note, MTN Memorandum of understanding, MOU Merger Mezzanine debt Mezzaniner Micro-Cap

Microcredit Microfinance Mid-Cap Mimicry Minimum-price offering Minority discount Minority interests Minority shareholder Minority value Model risk Modified IRR Modified duration Modified internal rate of return, Modified IRR, MIRR Modigliani-Miller theorem Momentum Monetary items Money market funds Money-market funds Monte Carlo simulation Moral hazard Mudharaba Multiple voting shares Multiple(s) Multiples method Multiplier effect Murabaha Musharaka