Modigliani and Miller Proposition

Modigliani and Miller's propositions suggest that a company's value is unaffected by how it finances itself—whether through debt or equity—under certain ideal conditions like no taxes or bankruptcy costs. In simple terms, whether a company raises money by selling shares or borrowing money doesn't change its overall worth. The core idea is that the market's view of a company's investments matters more than its mix of debt and equity, assuming perfect market conditions. These propositions serve as a fundamental benchmark to understand the impact of financial decisions, though real-world factors often complicate this picture.