Modigliani and Miller refer to a foundational theory in corporate finance developed by Franco Modigliani and Merton Miller in the 1950s, which states that under certain conditions, a firm's value is unaffected by its capital structure. This means that the way a firm finances itself—through debt or equity—does not influence its overall market value, assuming perfect market conditions and no taxes. Their work highlights the importance of understanding the implications of capital costs, which ties into how marginal costs of capital are calculated and considered in financial decision-making.
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