The world of modigliani and miller

The World of Modigliani and Miller Robert Alan Hill Download free books at Robert Alan Hill The World of Modigliani and Miller Download free eBooks at bookboon.com The World of Modigliani and Miller 1st edition © 2015 Robert Alan Hill & bookboon.com ISBN 978-87-403-1062-7 Download free eBooks at bookboon.com The World of Modigliani and Miller Contents Contents Part One: An Introduction An Overview 10 1.1 he Foundations of Finance: An Overview 11 1.2 he Development of Financial Analysis 12 1.3 Questions to Consider 17 1.4 Fisher’s Legacy and Modigliani-Miller 18 1.5 Summary and Conclusions 22 1.6 Selected References 22 Part Two: he Dividend Decision 24 How to Value a Share 25 2.1 he Capitalisation Concept 27 2.2 he Capitalisation of Dividends and Earnings 29 2.3 he Capitalisation of Current Maintainable Yield 31 360° thinking Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities Download free eBooks at bookboon.com Click on the ad to read more The World of Modigliani and Miller Contents 2.4 he Capitalisation of Earnings 32 2.5 Summary and Conclusions 35 2.6 Selected References 35 he Role of Dividend Policy 36 3.1 he Gordon Growth Model 36 3.2 Gordon’s ‘Bird in the Hand’ Model 39 3.3 Summary and Conclusions 42 3.4 Selected References 42 MM and Dividends 43 4.1 he MM Dividend Hypothesis 43 4.2 he MM Hypothesis and Shareholder Reaction 45 4.3 he MM Hypothesis: A Corporate Perspective 47 4.4 Summary and Conclusions 51 4.5 Selected References 51 Increase your impact with MSM Executive Education For almost 60 years Maastricht School of Management has been enhancing the management capacity of professionals and organizations around the world through state-of-the-art management education Our broad range of Open Enrollment Executive Programs offers you a unique interactive, stimulating and multicultural learning experience Be prepared for tomorrow’s management challenges and apply today For more information, visit www.msm.nl or contact us at +31 43 38 70 808 or via admissions@msm.nl the globally networked management school For more information, visit www.msm.nl or contact us at +31 43 38 70 808 or via admissions@msm.nl Download free eBooks at bookboon.com Click on the ad to read more The World of Modigliani and Miller Contents Part hree: he Finance Decision 52 Debt Valuation and the Cost of Capital 53 5.1 Capital Costs and Gearing (Leverage): An Overview 54 5.2 he Value of Debt Capital and Capital Cost 56 5.3 he Tax-Deductibility of Debt 59 5.4 he Impact of Issue Costs on Equity and Debt 62 5.5 Summary and Conclusions 65 5.6 Selected References 66 Capital Gearing and the Cost of Capital 67 6.1 he Weighted Average Cost of Capital (WACC) 67 6.2 WACC Assumptions 69 6.3 he Real-World Problems of WACC Estimation 71 6.4 Summary and Conclusions 76 6.5 Selected Reference 78 GOT-THE-ENERGY-TO-LEAD.COM We believe that energy suppliers should be renewable, too We are therefore looking for enthusiastic new colleagues with plenty of ideas who want to join RWE in changing the world Visit us online to find out what we are offering and how we are working together to ensure the energy of the future Download free eBooks at bookboon.com Click on the ad to read more The World of Modigliani and Miller Contents MM and Capital Structure 79 7.1 Capital Structure, Equity Return and Leverage 80 7.2 Capital Structure and the Law of One Price 85 7.3 MM and Proposition I (the Arbitrage Process) 92 7.4 MM and Real World Considerations 95 7.5 Summary and Conclusions 99 7.6 Selected References 101 Part Four: he Portfolio Decision 102 Portfolio Selection and Risk 103 8.1 Modern Portfolio heory and Markowitz 108 8.2 Modern Portfolio heory and the Beta Factor 109 8.3 Modern Portfolio heory and the CAPM 111 8.4 Summary and Conclusions 115 8.5 Selected References 117 With us you can shape the future Every single day For more information go to: www.eon-career.com Your energy shapes the future Download free eBooks at bookboon.com Click on the ad to read more The World of Modigliani and Miller Contents MM and the CAPM 119 9.1 Capital Budgeting and the CAPM 119 9.2 he Estimation of Project Betas 121 9.3 Capital Gearing and the Beta Factor 126 9.4 Capital Gearing and the CAPM 130 9.5 Modigliani-Miller and the CAPM 132 9.6 Summary and Conclusions 138 9.7 Selected References 139 Download free eBooks at bookboon.com Part One: An Introduction Download free eBooks at bookboon.com The World of Modigliani and Miller An Overview An Overview Introduction Financial analysis has never been an exact science Occasionally, the theoretical models upon which it is based are even “bad” science he root cause is that economic decisions undertaken in a real world of uncertainty are invariably characterised by hypothetical human behaviour, for which there is little empirical evidence hus, a inancial model may satisfy a fundamental requirement of all theory construction It is based on logical reasoning But if the objectives are too divorced from reality, or underpinned by simplifying assumptions that rationalise complex phenomena, the analytical conclusions may be invalid Nevertheless, all theories, whether bad or good, still serve a useful role • At worst, they provide a benchmark for future development to overcome their deiciencies, which may require correction, or even a thorough revision of objectives • At best, they serve to remind us that the ultimate question is not whether a theory is an abstraction of the real world But does it work? he purpose of this study is to illustrate the development of basic inancial theory and what it ofers, with speciic reference to the seminal work of two Nobel Prize economists who came to prominence in the 1950s and have dominated the world of inance ever since: Franco Modigliani (1918–2003) Merton H Miller (1923–2000) he text’s inspiration is based on readership feedback from my bookboon series, which welcomed various explanations of Modigliani and Miller’s controversial hypothesis that identical inancial assets (for example, two companies, their individual shares, or capital projects) cannot be valued and traded at diferent prices Many readers also mentioned that this application of the economic “law of one price”, which permeates the series, concerning the irrelevance of dividend policy, capital structure and its portfolio theory implications, should be published in a single volume to focus their studies I agree, whole-heartedly Download free eBooks at bookboon.com 10 ... Click on the ad to read more The World of Modigliani and Miller 1.5 An Overview Summary and Conclusions he remainder of this study is designed to complement and develop your understanding of the normative... more The World of Modigliani and Miller Contents MM and Capital Structure 79 7.1 Capital Structure, Equity Return and Leverage 80 7.2 Capital Structure and the Law of One Price 85 7.3 MM and Proposition...Robert Alan Hill The World of Modigliani and Miller Download free eBooks at bookboon.com The World of Modigliani and Miller 1st edition © 2015 Robert Alan Hill & bookboon.com