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CIMA F3 Capital structure (theories)

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mohammedhayadsays

During the explanation of M&M proposition with taxes (1963) you stated that, the cost of bankruptcy has been completely ignored and therefore with the inclusion of bankruptcy cost WACC would increase, which is similar to the traditional theory. If it so, then isn’t it an assumption that Financial distress does not carry any cost, is correct in the Example of M&M assumptions. Please clarify.

mohammedhayad says

During the explanation of M&M proposition with taxes (1963) you stated that, the cost of bankruptcy has been completely ignored and therefore with the inclusion of bankruptcy cost WACC would increase, which is similar to the traditional theory. If it so, then isn’t it an assumption that Financial distress does not carry any cost, is correct in the Example of M&M assumptions. Please clarify.

gavinmo says

Well presented, I now understand it much better after watching the lecture video