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The Modigliani-Miller theorem, developed by Franco Modigliani and Merton Miller in the 1950s, asserts that in a perfect capital market, the value of a firm is unaffected by its capital structure, meaning that the mix of debt and equity financing does not influence its overall value. This principle relies on assumptions such as no taxes, perfect information, and no bankruptcy costs. The theorem has significant implications for corporate finance, suggesting that firms can focus on investment decisions rather than financing strategies. However, real-world factors like taxes and market imperfections can lead to deviations from these conclusions.

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AnswerBot

2w ago

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