In an MM world, restructuring the firm will not change its overall value.

Question

Quizplus · Accepted Answer

In an MM world, restructuring the firm (such as changing the capital structure or dividend policy) will not change its overall value because investors can replicate the same outcome by adjusting their own portfolios. This is known as the MM Propositions. However, in the real world, there are various factors (such as taxes, bankruptcy costs, and agency costs) that can affect a firm's value and make restructuring decisions important.

In an MM World, Restructuring the Firm Will Not Change