Respuesta :
$4.2milion the value of the company if it changes to a debt-equity ratio of 627.
What is the M&M theory and how is it used?
One of the most significant theorems in corporate finance is the M&M Theorem, often known as the Modigliani-Miller Theorem. The economists Merton Miller and Franco Modigliani formulated the theorem in 1958. According to the M&M theory, a company's capital structure has no bearing on its overall worth.
According to the Modigliani-Miller theorem (M&M), a firm's market value may be accurately determined as the sum of its underlying assets and its future net present value of profits. This calculation is made independently of the capital structure of the company. The M&M theory: what is it and how does it work?
According to M&M proposition 1,
if there are no taxes,
Value of the levered firm = the value of unlevered firm.
value of company = $4.2milion
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