Month: February 2022

The arbitrage process is the behavioral foundation for the M-M thesis. The shortcoming of this thesis lie in the assumption of perfect capital market in which arbitrage may fail to work and may give rise to discrepancy between the market Read More …

The Modigliani-Miller (M-M) posits that in the absence of taxes a firm’s market value and the cost of capital remain invariant to the structures changes. Assumptions The M-M hypothesis can be explained in terms of their propositions I and II Read More …

The validity of the traditional position has been questioned on the ground that the market value of the firm depends upon its net operating income and risk attached to it. The form of financing can neither change the net operating Read More …

Capital of a firm is a mix (or proportion) of a firm permanent long term financing representing by debt, preferred stock and common stock Given that is firm has a certain structure of assets, which offers net operating earnings of Read More …

Bonus shares can be issued only out of free reserves built out of the genuine  share premium collected in cash only Reasons for Issuing Bonus Shares The bonus issue tends to bring the market price per share within a more Read More …

While formulating its dividend policy a firm should bear in mind the following considerations:  Investment decisions have the greatest impact on value creation. External equity is more expensive than internal equity (retained earnings) because issue costs and underpricing. Most promoters Read More …