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The MM approach, or Modigliani-Miller theorem, is a foundational principle in corporate finance that suggests a firm's value is unaffected by its capital structure in a perfect market. This means that whether a company finances itself through debt or equity, its overall value remains the same, assuming no taxes, bankruptcy costs, or asymmetric information. The theorem highlights the importance of factors like investment decisions and cash flow over financing choices. However, in reality, market imperfections can influence a firm's capital structure and value.

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1mo ago

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