Miller and Modigliani Theorem

The Miller and Modigliani Theorem states that in a perfect market without taxes, bankruptcy costs, or other frictions, a company's value is unaffected by how it finances itself—whether through debt or equity. Essentially, the way a company raises money doesn’t change its overall worth; investors can create the same financial leverage on their own if needed. This concept helps illustrate that, under ideal conditions, the structure of a company's financing decisions doesn’t influence its value, focusing instead on its assets and operations.