Mam please xplain me modigilani & miller dividend models & it's assumptions by giving some xamples in an understandable way

Priya sarda

The Modigliani-Miller theorem (M&M) states that the market value of a company is correctly calculated as the present value of its future earnings and its underlying assets, and is independent of its capital structure. Modigliani – Miller theory is a major proponent of 'Dividend Irrelevance' notion. According to this concept, investors do not pay any importance to the dividend history of a company and thus, dividends are irrelevant in calculating the valuation of a company. Modigliani-Miller have argued that firm's dividend policy is irrelevant to the value of the firm. ◦According to this approach, the market price of a share is dependent on the earnings of the firm on its investment and not on the dividend paid by it. Think of the firm as a gigantic tub of whole milk. The farmer can sell the whole milk as is. Or he can separate out the cream and sell it at a considerably higher price than the whole milk would bring. (That's the analog of a firm selling low-yield and hence high-priced debt securities.) But, of course, what the farmer would have left would be skim milk with low butterfat content and that would sell for much less than whole milk. That corresponds to the levered equity. The M and M proposition says that if there were no costs of separation (and, of course, no government dairy-support programs), the cream plus the skim milk would bring the same price as the whole milk."