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Jasmine Wilkinson
on Dec 01, 2024

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In the MM model, as the proportion of debt in the capital structure increases, the cost of equity:

A) increases.
B) decreases.
C) remains unchanged; there is no relationship between the two.
D) initially rises rapidly, then increases slowly beyond some point.

MM Model

The MM Model, or Modigliani-Miller Theorem, is a finance theory that suggests market value of a company is determined by its earning power and risk of underlying assets, independent of its capital structure.

Cost Of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in capital budgeting to evaluate projects.

Capital Structure

The composition of a company's liabilities and equity, describing how it finances its overall operations and growth.

  • Appreciate the implications of the Modigliani and Miller (MM) model on capital structure theory.
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Ronit WadhwaDec 06, 2024
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