Modigliani & Miller’s revelations on the impact of capital structure on a company’s value and cost of equity was pathbreaking in the world of finance. Modigliani & Miller’s theory (often referred to as M&M or MM ) is encountered by every finance student in the introduction to finance or foundations of finance class. Modigliani & Miller first espoused their theory in the article “The Cost of Capital, Corporate Finance and Theory of Investment” in the American Economic Review (June 1958) and brought about a revolution in corporate finance. Both Franco Modigliani and Merton Miller received separate Nobel Prizes for their work in finance that included this paper.
The finance team at GraduateTutor.com has tried to illustrate the essence of Modigliani & Miller’s insight in corporate finance using this illustration.
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Modigliani Miller – An infographic by the finance tutoring team at Graduatetutor.com
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Modigliani Miller – An infographic by the team at finance tutoring team