Q265
Which of the following is not an assumption in the Miller & Modigliani approach?
A.
There are no transaction costs
B.
Securities are infinitely divisible
C.
Investors have homogeneous expectations
D.
All the firms pay tax on their income at the same rate
AnswerAnswer: Option D
Solution
Answer: Option D
Solution:
All the firms pay tax on their income at the same rate is not an assumption in the Miller & Modigliani approach. 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.