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Are Modigliani and Miller’s theories applicable today?

Are Modigliani and Miller’s theories applicable today?
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Answer #1

No Modligliano and millers threories not applicable today.

As because MM theory explains that dividend policy is irrelevent in real life which is totally not acceptable in real life. It also has the following assumptions like

No Taxes

No transaction cost

No bankcruptancy cost

Equivalence in borrowing cost for both companies and investors

Symmetry of market information, meaning companies and investors have the same information

No effect of debt on a company earning before interest and taxes.

No this following assumption does not work in real life, in real life there are taxes there are transaction cost and Debt effect companies EBIT and therefore it is totally not acceptable in real life.

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