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Hello, sorry if this question is stupid, I’m revising for my ACCA AFM starting with AFM u see after being out of practice for a while.
I was hoping you could tell me how important are modigliani and miller conclusions in this exam? Will I need to mention their theories at any point?
As far as I’m aware the share price is influenced by the future expected dividends from potential investors. More profit the company makes the more investors expect to make in the future, the higher their expected future dividends, the higher the market value of the share.
If modigliani and miller have a different view would it be possible to explain it to me like a dummy please, I do not really understand what they say.
See the response of Barbara2012 on the following thread-
https://opentuition.com/topic/modigliani-and-miller/
One minor quibble with this response I would have is the with tax model assumes 100 per cent debt not 99.9%. However, I understand why the poster has done this as some share capital is needed in practice. However, this should be held at bare minimum. Other than the above point, this is a great response. Hope this helps.
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