What is MM approach of capital structure?
John Johnson
Updated on February 11, 2026
The Modigliani and Miller Approach further states that the market value of a firm is affected by its operating income, apart from the risk involved in the investment. The theory stated that the value of the firm is not dependent on the choice of capital structure or financing decisions of the firm.
How is capitalization different from capital structure?
Capitalization represents permanent investment in companies excluding long-term loans. Capitalization can be distinguished from capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect.
What do capital structure decisions refer to in Chapter 13?
Capital Structure decisions refer to the: A. Dividend yield of the firm’s stock B. Blend of equity and debt used by the firm C. Capital gains available on the firm’s stock D. Maturity date for the firm’s securities B. Blend of equity and debt used by the firm
What does it mean to make a dividend decision?
What are Dividend Decisions? Dividend decisions, as the very name suggests, refers to the decision-making mechanism of the management to declare dividends. It is crucial for the top management to determine the portion of earnings distributable as the dividend at the end of every reporting period.
How does a dividend policy affect the valuation of a company?
In aggregate, an inefficient dividend decision mechanism would adversely impact the valuation of the company. The financial manager must take into account the capital fund requirements while framing a dividend policy. Generous distribution of dividends in capital-intensive periods may put the company in financial distress.
What kind of Business is expected to pay dividends?
For example, businesses with a consistent order book such as telecom and banking are expected to pay regular dividends. It may impact the stock prices if they do not pay dividends regularly. To the contrary, sectors of pharmaceutical and technology are highly research oriented.
