Mm proposition 1 states that ldquoin a perfect capital, Financial Management

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Mm proposition 1 states that ldquoin a perfect capital

MM proposition 1 states that “In a perfect capital market, the total value of a firm is equal to the market value of the total cash flows generated by its assets and is not affected by its choice of capital structure”. However, you know that the capital market is not perfect. Explain the agency cost and benefit in relation to the use of leverage. What effect will they have on the valuation of the firm?

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Financial Management: Mm proposition 1 states that ldquoin a perfect capital

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