Modigliani and Miller (M&M) (1958) advanced the idea that, if your objective is to maximise shareholder value,
the debt to equity ratio is irrelevant. However, they did comment that this conclusion only held in a world of no taxes. In a world with tax, MM counter argued that it was better to 'gear-up' a company as high as possible.
Discuss M&M's theoretical arguments in relation to the real-world influences on the gearing level adopted by firms. Does an 'optimum' level of gearing really exist?
PLEASE NOTE: There is no optimum capital structure that exists in the real world. Therefore, companies... View the full answer