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TULTOU erating Le The o nagnify Ques. 'That personal leverage can replace corporate leverage' is assumed by (NTA UGC-NET Jan. 2017pperating (A) Traditional Appr
TULTOU erating Le The o nagnify Ques. 'That personal leverage can replace corporate leverage' is assumed by (NTA UGC-NET Jan. 2017pperating (A) Traditional Approach (C) (B) Net Income Approach MM Model MM Model evalua les. T Ans. (B) D) Net Operating Income Approach Contact Us: Website www.eduncle.com Email: support@eduncle c ariab neasy
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Dear student,
Greetings!!
‘That personal leverage can replace corporate leverage' is assumed by MM Model.
The fundamentals of Modigliani and Miller Approach resemble that of Net Operating Income Approach. Modigliani and Miller advocate capital structure irrelevancy theory. This suggests that the valuation of a firm is irrelevant to the capital structure of a company. Whether a firm is highly leveraged or has lower debt component in the financing mix, it has no bearing on the value of a firm.
Modigliani and Miller Approach further states that the market value of a firm is affected by its future growth prospect apart from the risk involved in the investment. The theory stated that value of the firm is not dependent on the choice of capital structure or financing decision of the firm. If a company has high growth prospect, its market value is higher and hence its stock prices would be high. If investors do not see attractive growth prospects in a firm, the market value of that firm would not be that great.
Thank you for asking your query.