Quiz Ch 13 – T/F Modigliani and Miller’s Influence on Capital Structure Models
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
True or false: Modigliani and Miller (MM) assumed a bankruptcy-free setting. This led to the “trade-off” model, where debt initially raises value due to tax shelter, but more debt later increases bankruptcy costs, surpassing tax benefits. The trade-off theory suggests an optimal capital structure.