The MM model employs the concept of arbitrage to develop its theory.

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The MM (Modigliani-Miller) model is based on the concept of arbitrage, which refers to the process of taking advantage of price differences to make profits without incurring any risk. In their model, Modigliani and Miller showed that under certain assumptions, the value of a firm is independent of its capital structure, meaning that the cost of capital and the value of the firm remain constant regardless of how the firm is financed. This theory is also known as the capital structure irrelevance principle.

The MM Model Employs the Concept of Arbitrage to Develop