Which of the following is not an assumption in Miller and Modigliani approach?
A. There are no corporate or personal income tax
B. Investors are assumed to be rational and behave accordingly
C. There is no corporate tax though there are personal income tax
D. Capital markets are perfect
Answer: Option C
Solution (By Examveda Team)
The Miller and Modigliani (M&M) approach is a foundational theory in financial management related to capital structure and firm valuation.According to the original M&M proposition (without taxes), several assumptions are made to simplify the model and focus purely on capital structure.
Key assumptions include:
1. There are no corporate or personal income taxes.
2. Investors are rational and aim to maximize their wealth.
3. Capital markets are perfect — meaning there are no transaction costs, information is freely available, and securities are infinitely divisible.
4. The firm’s investment policy is fixed and known to all investors.
Option C states: "There is no corporate tax though there are personal income tax" — this violates the original M&M assumption where both corporate and personal income taxes are assumed to be absent.
Therefore, Option C is not an assumption of the Miller and Modigliani approach and is the correct answer.
This Question Belongs to Commerce >> Financial Management
Wtf is wrong with you people kindly correct the wrong mcqs it's correct option is option c. Please people rely on you people for preparations kindly once review your website
Is there any wrong in answer? I thnk so.
Is there any wrong in answer. I thnk so.
I have a double , I think ans c is correct bcz personal tax is not discussed in mm approach