Modigliani–Miller capital structure propositions

Without taxes and under idealised perfect-market assumptions, changing debt/equity mix does not change total firm value or WACC: cheaper debt is offset by a higher equity required return as gearing rises. With corporate tax and a usable interest tax shield, debt can add value in the simplified model. The familiar perpetual-debt relation VL = VU + T×D relies on its assumptions. Real financing decisions also involve distress costs, agency effects, taxes, information differences and flexibility. The propositions are a framework for analysing these effects, not a recommendation for unlimited debt.