indicate whether you agree with the following statement that describes Modigliani and Miller\'s work: \"In the absence of taxes, bankruptcy costs and asymmetric information, and in an efficient market, the value of the firm is unaffected by how that firm is financed\" (MIT Sloan Lecture Notes, Finance Theory II, Dirk Jenter, 2003). Solution The statement is correct. In the absence of taxes ,bakruptcy costs and asymmetric information and in an efficient market ,The value of firm is unaffected by how that firm is finances . since the value of firm depends neither on its dividend policy nor its decision to raise capital by issue or selling debt ,This theorem is also called capital structure irrelevance principle. since debt is tax deductible ,however if there are no taxes it is irrelevant whether to raise funds by debt or equity (As not tax shield will be available) ..

1. indicate whether you agree with the following statement that describes Modigliani and Miller's
work:
"In the absence of taxes, bankruptcy costs and asymmetric information, and in an efficient
market, the value of the firm is unaffected by how that firm is financed" (MIT Sloan Lecture
Notes, Finance Theory II, Dirk Jenter, 2003).
Solution
The statement is correct.
In the absence of taxes ,bakruptcy costs and asymmetric information and in an efficient market
,The value of firm is unaffected by how that firm is finances .
since the value of firm depends neither on its dividend policy nor its decision to raise capital by
issue or selling debt ,This theorem is also called capital structure irrelevance principle.
since debt is tax deductible ,however if there are no taxes it is irrelevant whether to raise funds
by debt or equity (As not tax shield will be available) .