Modigliani and Miller: The Informal Way

Need help with your homework? Look no further! Our subject experts are ready to effortlessly handle your assignments, so you can finally say goodbye to stress and hello to top grades.

Click or drag files to this area to upload. You can upload up to 3 files.
Get a response in under 15 min

Are you looking forward to understand the various ideas associated with the firms a lot better? Well, if you are, it is strongly recommended for you to go through the various propositions of M & M, namely Modigliani Miller. It will without a doubt give the readers a firm idea as far as the various decisions related to the capital structure are concerned. However, if you are actually willing to learn this theory, it is important for you to be well aware of the various rules of algebraic operations as it mostly comprises of such operations. Though this may appear to be quite complex, they ideas on which they are based are quite simple and easy to understand. These ideas ought to be explained with the help of the anecdote that follows. Merton Miller had given a welcome speech for Louvain in 1986 in Belgium. This anecdote was a major attraction as far as his speech was concerned. His other half had already received a noble prize and he himself would receive the same in the years to follow.

When Franco Modigliani my other half as far as the book goes received a noble prize in October, these papers came to my table. He has received the prize in the field of economics. The idea itself seemed to be complex, summarizing these papers and explaining them did not appear to be that easy. I was immediately approached by the media of Chicago. They asked me to explain these papers in front of the public through their channel in brief. On being asked how brief do they want the explanation to be, to my disdain they replied about ten seconds. Our work majorly comprised of two articles each having about a thirty pages. In addition to this, each page had footnotes that were about 60 words longs. This was something that two of us had dedicated our lives to. The idea of explaining all of that in a matter of ten seconds sounded quite absurd. On realizing my disdain, they asked me not to explain things in depth. They just wanted an overall idea. The first thing that came to my mind was the capital structure of the 1st article. According to this principle, the risks and the earning capabilities governed the value of the various securities in the market.

Describing all of our work in a single speech would be based on various concepts that would appear to be absurd as far as the common people were concerned. The situation I fell into was quite similar to that of the market of the capitals. These markets are quite efficient as far as economists are concerned. However when it comes to the public, it isn’t. Hence, it appeared to me that the manner of explanation that I was thinking of isn’t going to pay off. Then I thought of bringing in an analogy. I asked the listeners to consider a company or a firm as a huge tub containing milk. I went ahead. The farmer ought to have two options ahead of him. The first to sell the whole thing as it is. The second way however is a bit different, he might as well consider the idea of separating the cream which he could without a doubt sell at a much higher price as compared to the 1st option. Selling cream here is analogous to clearing out the securities of higher debts. However, once the farmer has sold the cream, it is imperative that the milk that is now left with him is exceedingly skim and would certain sell at a much lower price in comparison to the price of the whole milk. The milk that is left over after the cream has been sold is analogous to the equity that has been levered. According to the various propositions that were made in the two articles of M & M, the net value or the net profit in both the cases would be same if you consider that the separation cost was zero. This still appeared to be exceedingly long to the media people and they informed me the same after a while of discussions. They asked for something that would be a lot simpler than what I had just said. Securities are nothing but tool that initiate the division of the pay offs of a particular firm. Another proposition in our articles comprised of these ideas as well as the idea of the market being complete. These partitions were considered to be in accordance with the various possible states. Next I asked how many of them love pizza? I further asked them to assume the entire firm to be a pizza.  This got everyone excited. The pizza was divided into 4 quarters. Now I asked them to further divide each piece in the ratio 1 : 1. According to the various propositions make in our articles, the owner of the pizza will definitely have more number of pieces but does that signify that they will have more pizza? Obviously not!

Even this did not penetrate their brains. After a bit of further discussions, they came up to me again and asked me to move on to two the next proposition in our articles, namely the proposition for invariance. Explaining this proposition within such a short time span was a lot more difficult. Individuals today focus on getting profits divided but in turn they fail to forget that the more the number of individuals among whom the profit must be divided, the lesser will be the individual earning. However, the dividend is something that needs to be earned. It is analogous to the profit a particular firm or company makes. The articles did not focus on these much. According to the proposition, once a firm was functional, the dividend value and the shareholder value isn’t going to be related in any manner. While I was considering all these facts, it struck me. I had only ten seconds to explain all this. Then I thought of another anecdote. Consider a situation where in you have some money in your right hand pocket, say ten dollars. If you transfer the money to the other pocket, the ten dollar certain isn’t going to change.

On hearing this, they again started conversing with one another. However, to my delight, they started packing up. Once they were done with the packing up of their equipment’s they came up to me and thanked me in return for my cooperation. In the end they added that they might just get back to me. However, I felt that my chance for gaining some popularity went away from me. I said to myself that when it comes to explaining lifelong research papers in ten seconds, not everyone can be good at it. Getting back to the examples I went up to, they weren’t actually sufficient as far as doing justice is concerned. Yes, they did have a bit of resemblance but if you consider complete justice, they were lagging way behind. Certain writers even went on with clarifying my first example. He did so by finding out the costs of skim milk, whole milk and cream in various markets.

SOLVE NOW

Modigliani and Miller: The Informal Way 3

 

 

Links of Previous Main Topic:-

Links of Next Financial Accounting Topics:-

Homework Blues?

Get expert help with homework for all subjects.

  • NPlagiarism-free work
  • NHonest Pricing
  • NMoney-back guarantee

Latest Reviews

Solved Sample Works

Accounting Homework

Corporate Accounting Sample

Biology Homework

Genetics Assignment Sample

Essay Writing Help

Business Plan Sample

Homework Help FAQs

Our Answers to Your Questions

How do I submit my homework?
K
L

Getting homework help is very simple with us. Students can either send us the homework via email or they can upload it to our online form here. For a quicker response, You can also chat with us at WhatsApp and submit homework directly. You are sure to get a response from our side within 10 minutes.

How much will my homework cost?
K
L

The cost of paying someone to do your homework varies depending on the service and the type of assignment. We have listed our standard pricing plans for popularly used writing services. For other kind of assignments, You can get a free instant quote from us using our online form.

We also accept partial payment to start working on your assignment help. You can pay the remaining amount when your task gets completed. No pressure of up-front payment. No hidden order costs.

Can I receive help with my homework anytime?
K
L

Yes, you can receive help with your homework anytime with us. Our online homework help services are available 24/7, allowing you to receive assistance with your homework anytime, anywhere.

For urgent homework requests, reach out to us through our LiveChat or WhatsApp channels and one of our friendly support agents will assist you in finding the right expert for your online homework help request immediately. With our services, you can rely on 24/7 availability and meeting deadlines.

Are online homework websites budget-friendly for students like me?
K
L

Yes, Our Online Homework Help websites are an affordable solution for you as a student. Compared to traditional tutoring services, MyHomeworkHelp prices their homework help services honestly and within the budget of college students. This makes it easier for you to receive assistance with your homework without breaking the bank.

What is your plagiarism-free policy?
K
L

At myhomeworkhelp, we take plagiarism very seriously and ensure that all solutions provided by our tutors are original and authentic. Our tutors are trained to provide custom-made solutions, tailored specifically to meet the requirements of each student. We do not provide pre-written papers. All our homeswork solutions are made from scratch, guaranteeing 100% orignal homework answers.

Additionally, we have strict plagiarism-detection tools in place to check all submissions for authenticity.

Is using an Online Homework Help Service cheating?
K
L

Using online homework help services is not equivalent to cheating. Our services are intended to support students with their homework and provide them with the resources they need to succeed academically. With the help of our online homework help services, students can receive immediate assistance with their homework from any location, at any time.

At myhomeworkhelp, we are committed to promoting academic integrity. Our tutors provide solutions that serve as guides for drafting your own work. It is not acceptable to submit someone else's work as your own, as this constitutes academic plagiarism.

Can I chat with my tutor?
K
L

Using our secure chat board, you can now chat directly with your assigned tutor. The chats are encrypted both ways to secure your privacy. This makes your contact with the tutor directly & confidentially, so you can better explain any requirements or changes if needed or just need updates.

You can't contact the experts outside of chat board platform. Sharing any personal information, including but not limited to contact information, goes against our Terms and Conditions and therefore may result in permanently blocking you from the platform. We take any personal data very seriously and we do it for the safety of our users.

Know more about chat board here.

What is your money-back guarantee policy?
K
L

It’s worth noting that our online homework help service rarely leads to disappointment among students. Our expert tutors, along with our support and quality assurance team, are dedicated to providing the best possible experience for our customers. However, if for any reason a student is unsatisfied with their homework help solution, we offer unlimited revisions until they are fully satisfied.

In the rare event that a student remains unsatisfied even after revisions, we offer a money-back guarantee. We want all of our students to feel confident and secure when they turn to us for assistance with their homework, and this guarantee is just one way that we demonstrate our commitment to providing the best possible service. If you have any concerns about our services or the quality of the work you receive, please contact us for support.

What is the expertise of the tutor assigned to do my homework?
K
L

At myhomeworkhelp, we take pride in our team of qualified and experienced tutors. All of our tutors undergo a rigorous selection process and are required to have a minimum of a master's degree in their respective fields. Additionally, they must pass a series of tests to demonstrate their proficiency and ability to deliver quality work. We believe in transparency and providing our clients with the best possible service. You can be confident in the expertise of the tutor assigned to do your homework.

What about privacy & confidentiality?
K
L

Using My Homework Help is absolutely safe. We care about your security, therefore we encrypt all personal data to make every user feel safe while using our services and we don’t share any personal information with any third parties without your permission. Your credit card information is not stored anywhere at My Homework Help, and use of PayPal relies on their secure payment networks. Your identity, payment and homework are in safe hands. You can always be certain of getting professional help and remaining anonymous, while using My Homework Help.