What Is the Merton Model?

MM model-Modigliani Miller Models, Miller-Modigliani model, irrelevant theory of company capital structure and market value.

MM model

MM Models-Modigliani Miller Models, Miller-Modigliani Models, Inc.

There are two main types of "MM" theory: the MM model without corporate tax and the MM model with corporate tax.

1) MM theory without company tax: MM puts forward 2 propositions:

a, Proposition 1: The total risk of all securities holders of the company (

MM theory believes that the higher the enterprise debt ratio is, the more beneficial it is to the enterprise. When the enterprise debt ratio is 100%, the enterprise value is the largest. However, this analysis does not take into account the cost of bankruptcy of the enterprise, so the conclusion that 100% debt makes the value of the enterprise far away from economic reality. The trade-off model in modern western capital structure theory introduces the risk of bankruptcy on this basis, and further perfects the capital structure theory to make it more realistic, which has attracted the attention of various countries.