Critique On Mm Theory - Free Essay Example

Sample details Pages: 4 Words: 1112 Downloads: 9 Date added: 2017/09/22 Category Advertising Essay Type Argumentative essay Did you like this example? American economist Franco Modigliani and Merton H. Miller published The Cost of Capital, Corporation Finance and the Theory of Investment (Hereafter MM theory); a paper presented the initial MM theory, which states that under a certain market price process, in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. It does not matter if the firms capital is raised by issuing stock or selling debt. It does not matter what the firms dividend policy is (Modigliani and Miller 1958). The basic assumptions of MM theory are: 1. The company only has the long-term bonds and common stocks, both bonds and stock trade in the complete capital market with no transaction cost; 2. The individual investors and corporate investors could gain the same interest rate with no liability risk; 3. The companies with similar operating conditions have the same business risks; 4. Investors hold the same expectations on the average business profit in future; 5. All cash flows are perpetual annuities, including EBIT (Earnings before interest and tax) etc, that is, the growth rate of the enterprise is zero (Modigliani and Miller 1958). The development of MM theory mostly experienced three stages: 1. No-tax model. The first MM model takes no account of corporate taxations; 2. Corporate tax model. Modigliani and Miller (1963) published Corporate Income Taxes and the Cost of Capital: A Correction, which loosened its initial assumptions, introduced corporate tax into MM theory(Modigliani and Miller 1963); 3. Miller model. Merton H. Miller (1976) proposed to consider corporate tax and individual tax in estimating how the debt leverage impacts the value of firm (Miller 1977). During the past 50-year, MM theory has made tremendous academic achievements for western companies in exploring the optimal capital structure and reducing capital costs etc. Firstly, it provides a research frame of reference and theoretical basis. Since that, most of the capital theories are base on MM theory, such as Pecking-order Theory, Trade-off Theory, and Agency Theory etc. Secondly, MM theory makes the capital structure theories systematic and builds a framework for the development of capital structure theories. Secondly, MM theory makes the capital structure theory systematically, as there was not a system of traditional capital structure theory. Last, but not least, it is only a general description of the traditional capital structure theory. While MM theory uses modern analytical methods, such as partial equilibrium, mathematical analysis etc, therefore, it makes MM theory become reliable. Despite tremendous achievements, there are still limitations in MM theory. First, the assumptions are too harsh, and most of them cannot be achieved in reality. To illustrate, MM theory assumes that individuals and corporations could borrow at the same interest rate, and can be subst itutive, but, in fact, the individual borrowers pay more than what corporations do, as well as bear a higher risk. Furthermore, MM theory also assumes there is no transaction cost, which extremely differs from the real transaction process. Second, the assumptions are beyond the reality, although the logic derivation is correct, the conclusions still differs. Both corporate tax model and Miller model suppose that corporation should raise the liability as much as possible in order to maximise the value of the firm, in extremity, up to 100% liability. However, none of enterprises adopt this point. Third, MM theory stands at a static perspective, and does not consider the external economic environment and the impact on capital structure by changing enterprise’s production and operating conditions. In fact, many factors, which affect the capital structures, are variable. For example, companies should cut down their liabilities appropriately in order to reduce business risks, when the socio-economic experiences a recession. According to MM theory, the value of tax saving is associated with the corporate income tax rate. That is, the higher corporate income tax rate, the more tax deductible the corporation could achieve from financing by liability. In other words, corporations are inclined to finance by liabilities rather than equity financing in relative higher corporate income tax rate countries, and vice versa. Under the actual situation in China, the corporate income tax is much higher than other countries in the world; corporations should prefer financing from debt theoretically (Huang and Zhang 2007). However, actually, the capital structure of Chinese enterprises runs counter to the MM theory and other capital structure theories. The proportion of liability financing in China is far less than the proportion of equity financing (Huang and Song 2006). First of all, there is merely no mechanism in applying MM theory. In accordance with the MM t heory, both individual and institutional investors can process arbitrage actions freely in the capital markets. In western well-developed capital markets, there is a wide range of fund-raising channels and other financing options, the arbitrage mechanisms usually affect the markets. However, at present, the market mechanism is not fully developed in China, as well as capital market is under-developed. Thus, these limit the financing options and forms; make it difficult to carry out arbitrage activities. Generally, MM theory cannot be applied. Secondly, the tax-saving of MM theory affects gently in China. As the taxations are mainly coming from turnover tax in China, and 80% of the tax is from value-added tax, consumption tax etc, while the income tax only accounts for 20% of the tax revenue. Compared with western countries, the income tax is accounted for 80% of the tax revenue. As consequence, the benefits from tax-saving produce little effect. Finally, MM theory is based on the western complete financial markets, as companies are free to choose a variety of funding sources from the capital market, and all the investors are free to choose their own investments. However, the capital market is not yet perfect in China, bond financing is subject to strictly control and, therefore, the theoretical framework of MM theory cannot be applied perfectly in China. To sum up, MM theory does make great academic achievements to modern capital structure research, and it provides a systematic framework for later development. However, the assumptions of MM theory are over-theoretical, which cannot be obtainable in actual world. Thus, it needs to consider other variables in factual analysis. ? References Huang, G. and F. M. Song (2006). The Determinants of Capitral Structure: Evidence from China. China Economic Review 17(1): 23. Huang, S. and G. Zhang (2007). The Analysis of Financing Preference on Chinas Listed Companies. Economic Research Journal 42(472): 12. Miller, M. H. (1977). Debt and Taxes presidential address delivered at the annual meeting of the American Finance Association, September 17, 1976. Journal of Finance. Modigliani, F. and M. H. Miller (1958). The Cost of Capital, Corporation Finance and the Theory of Investment The American Economic Review 48(3): 38. Modigliani, F. and M. H. Miller (1963). Corporate Income Taxes and the Cost of Capital: A Correction. The American Economic Review 53(3): 11. Don’t waste time! Our writers will create an original "Critique On Mm Theory" essay for you Create order

Sublimation Definition (Phase Transition in Chemistry)

Never Before Told Stories on Exploration Essay Topics That You Must Read or Be Left Out

Never Before Told Stories on Exploration Essay Topics That You Must Read or Be Left Out The Good, the Bad and Exploration Essay Topics Your essay is the opportunity to liven up your application. Although the writer is just describing the subject, there ought to still be logic to follow. Your thesis ought to be relevant so the write-up can use a structure that's flexible in order to fit in the shoes of the readers. Finding out how to compose an essay is something which will help students not just in their school and college career, but throughout their life also. If you opt to concentrate on an obscure social networking platform, you might struggle to flesh out your essay or compose enough valuable details. The exploratory essays are usually assigned to the students when there's a demand for them to understand something independently, as opposed to learning it within a conventional way from the teachers. If you're bored with the topic that you're given by the teacher or need to accept since you don't have any other ideas, you'll need to overcome a variety of unpleasant emotions before getting down to collecting the required info and writing. If you're really fighting to select a theme or topic, don't hesitate to get assistance from professional and inexpensive reliable essay writing service such as EduBirdie. Furthermore, you don't need to devote a lot to acquire the support of our PhD qualified writers. The above mentioned means that extensive research isn't a choice or a student might get an unbalanced essay. Often college students get into a great deal of stress to get the suitable topic for the essay. The very first step is where a large number of students become stuck. Basically every student you'll be up against has done some kind of community support. Argue that public higher education has to be free for everybody. As an example, students might write about the advantages of a vegan diet. The Exploration Essay Topics Cover Up Cost shouldn't be a concern in such critical matters. To defend your subject, you might recall the effect of overloaded schedule on college grades. Suggest several ways students may work with each other to enhance the school spirit in your school. They lead busy lives and often forget about an upcoming deadline. The exploration of the outer space is a significant topic that numerous men and women often underestimate. The job ought to be full of particulars. Numerous arguments against space exploration show that we don't have sufficient money to waste on these sorts of activities. After learning all secrets of the planet people may search for what is correct in space. Hearsay, Lies and Exploration Essay Topics Since you can notice, nearly all of the topics mentioned in the aforementioned list focus do not own a definite answer. In case the topic is too narrow, you might find it difficult to discover the appropriate literature. Therefore, if you're allowed to select a topic by yourself, you should attempt to come up with it on your very own first. Research-based topics require students to assemble information till they write. The above-mentioned topic selection may give you a very clear comprehension of what things to write about. Exploratory essay ideas are difficult to come by, but there's an excellent assortment of topics you can select from. For some students, a choice of topic is the easiest part. Select one topic that you're knowledgeable about, along with comfortable with. Therefore, should you need to compose a synthesis essay that's devoted to the field of space exploration, start with choosing an intriguing topic. The more information you are able to gather about the subject, the better prepared you'll be for writing your essay. The topic has to be interesting, the topic has to be essential and finally the topic has to be informative. If you select a topic which you really like, it's probable that you'll have no troubles with either the practice of searching for reference information for your essay nor the writing itself. The Nuiances of Exploration Essay Topics Essay plans can be useful in reminding you of important points that may be used to cover in your essay. Referencing is an integral component of a grading rubric. There are several good persuasive essay topics to pick from. It's also necessary to be sure the essay is consistent in arguing the principal points of the essay. There are many different ways of writing an essay but the fundamental structure stays the same. Therefore, if you're requested to draft an exploratory essay in your school, college or university, it's essential to select a topic that supplies you with the scope to learn more about the subject vividly and most significantly learn some helpful lessons while working on the essay. The Chronicles of Exploration Essay Topics If you have to write only 1 paper at the conclusion of the period, you can breathe out as you are blessed. In this way, the reader may also feel the best way to be in that specific birthday party. It is possible to also restate the ideas you have discussed in the body paragraphs in order to make your point valid. Be clear in your thoughts about the point you wish to make.

Risk Involves Implementation of Treatments - Free Samples

Question: Discuss about the Risk Involves Implementation of Treatments. Answer: Introduction: The BBC News had reported some serious terror attacks that had taken place in Paris during November,2015. These attacks had taken place in various places in the city including the caf, the bars, the concert halls, the stadiums and the restaurants. These attacks were seen to be carried out by the various gunmen and the suicide bombers. The attacks were declared to be acts of war that were reportedly conducted by the militant group named Islamic State (IS). These attacks killed almost 130 people, more than 100 people critically injured and hundreds of others wounded. The first of the blasts had taken place at the Stade de France Stadium where a friendly exhibition football match on the international level had been going on between Germany and France. The terrorists then made their move towards the central area of the city of love, Paris. The AK47 open fire and the gun attacks took place at the Le Petit Cambodege, a Cambodian restaurant and the Le Carillon bar which is located on the ot her end of the restaurant management. The terrorists had shot down the revelers as well as the diners who had been present at the venues at the given point time. According to Masanauskas (2015), this massacre led to the death of almost 18 people. Bonne Biere, a caf as well as La Casa Nostra pizzeria also had to face the terrorist attacks which claimed the lives of 5 people and left 8 of them injured. The terrorists had also attacked the Bataclan concert wherein the Eagles, a Californian rock band that had been playing in front of a full house of almost 1500 fans. The gunman who had fired the Kalashnikov-type assault rifles had led to the death of 89 people who had been attending the concert on that fateful day. The terrorists had fired numerous rounds of bullets within the crowded venue followed by the use of an explosive vest as reported by Steafel, (2015). According to the NBN news, Paris had faced the attacks at several places on the same day. This, according to R (2015), had led to the transport and the schools of the city after a closure of four and two days respectively. The number of tourists who had been visiting the city had reduced by large measures due to the seriousness and the coordinated nature of the terror that had been troubling the concerned city. The terrorist attacks on the city had left their negative imprints on the tourism, hospitality and the events industry that had been functional in Paris. The terrorists had attacked the two major events that had taken place in Paris, the football match and the rock concert. According to the report published by the Wall Street Journal, the first attacker had managed to gather a ticket of the football match and was barred from entering the venue by the security guard who had been posted at the entrance of the venue on finding the explosive vest during the frisking of the terrorist. The terrorist had detonated the vest while moving away from the concerned guard. The second terrorist had detonated the explosive vest while standing outside the stadium while the third attacked had detonated the same a t a McDonald center, which is located near the concerned stadium. According to Robinson and Landauro (2015), all the three terrorists were suicide bombers and had done so to affect the football fans who had been present at the venue. Hurley (2015) had reported that 5 people had lost their lives in this incident and 18 people had lost their lives at another Japanese restaurant. The stadium had to stop holding the various events due to the declaration of the state of the emergency by the government of the land, which reveals that the authorities might experience a loss of the financial income of the sports stadium. According to Thompson (2015), this had led to the cancellation and the postponing of the various sports events. This had led to the governmental lockdown of Brussels for almost 51.7 million Euros per day. According to Wyke (2015), the French government had suffered almost 2 billion Euros due to these terrorist attacks management. A La Bonne Biere, a Parisian caf, was targeted and 5 people were killed by the terrorists, is one of the various shops that had reopened after the terrorist attacks. The owner of the caf had suggested that the caf had been closed and had been redecorated for the business purposes. Chazan (2015) stated that the authorities at the caf had worked hard for wiping off the scars that were left by the terrorist attacks that had taken place. A report by Daily Mail, Australia, Le Carillon bar, one of the targets of the terrorist attacks had re-opened their venue after almost two months after the terrorists had attacked the venue. Located at the heart of the city, this is one of the bars where the guests did enjoy the drinks even on the fateful day of the attack, due to which the functioning of the bar was hampered according to Hunter, (2016). The Casa Nostra Pizzeria restaurant also had to face some issues after the country had faced these attacks. A video had been published that put forth the assault that had taken place near the restaurant and the news media had claimed to have paid the restaurant an amount of $53,000. This claim had been refuted by the restaurant owner, Dimitri Mohamadi who had argued that the restaurant had faced a loss due to the concerned video. The restaurant is reported to be able to serve only 8 clients instead of the regular amount of 60 customers per day who used to visit the restaurant before the concerned terrorist attacks (France24, 2016). According to Frej (2016), La Belle Equipe Bistro Restaurant, wherein 20 people had lost their lives is one of the last among the cafs that did reopen. The Bataclan concert hall had thrown its gates open for Sting almost a year after the attacks as reported by the CNN. The musician had played for almost and hour for around 1000 people who had gathered in th e venue. According to Bell Vandoorne (2016), the venue had hosted this as a part of the remembrance as well as the celebration of the re-opening of the same. All the various targeted venues could not participate in the financial growth due to the terrorist activities and instead had to incur expenditure for the removal of the memories of the attack management. These terrorist activities had also affected the hospitality industry of the country. Wyke (2015) had stated that the hospitality industry had to deal with a lot of cancellations during the concerned period as well as a decline in the number of the tourists and clients who had been present in the various shops. The percentage of the stays at the various hotels of the country had declined in a huge manner which were reflected to be 8.5 percent of the earlier times. The decline faced from the foreign travelers were 11.5% and French tourists accounted for 4.8% of the same. The various holiday planners chose Greece and Spain to b e safer than Egypt, France, Tunisia and Turkey (Rodionova, 2016). The number of the tourists in Paris had faced a huge decline due to the anticipation of further attacks. As compared to the earlier years the number of tourists had declined by 1.5 million and the drop has cost the country a loss of almost 1.3 billion Euros (Paris region loses 1.5 million tourists over terror fears, 2017). The major source of income for the city are the Chinese travelers who spend a huge amount once they visit the city. Many of Chinese traveler visit one of the upmarket stores called Les Galeries Lafyettes, where they spend almost 1,400 Euros per visit. Other foreign tourists are also known for spending an average of 120 Euros per day. Hosie (2017) state that the number of the visitors from the various countries have declined on a high level. According to the Dailymail news, the activities of the Parisian hotels have faced a decline of 30-40 per cent and compared to November 2014, the occupancy in the capital has declined by almost 25 per cent. Air France, the French airline has lost around $130 million revenue after the attack while a museum that had 9.3 million visitors in 2014 experienced a drop to 8.7 million after the attack (Hunter, 2016). The addressal of the risk involves the implementation of the treatments and the concerned control over the areas of the risk. The lowering of the potential levels of the risks might include a well-planned treatment of the concerned risk. The risk treatment strategies might involve avoidance of the risk, acceptance of the risk, treatment of the risk and the transfer of the risk. The other options for the risk treatment might be avoidance, change in the likelihood of the occurrence, change in the consequences, sharing the risk and retaining the risk. The event industry might have to consider a huge number of factors like health and safety issues, electrical power, traffic controls, security and other such factors. Among the risk treatment options, a choice could be made regarding the likelihood of occurrence and the effects. The terrorists in these cases were suicide bombers and could have detonated themselves anywhere they felt like doing so. Due to these factors, it seemed impossible to bring about a change in the consequences since the stadium is the first targeted venue. However, in case of the third suicide bomber a change could have been brought about in the consequences. The occurrences revealed the fact that it is immensely important to protect the facility and the people who have been present at the concerned venue. The primary thing that must be done is the evacuation of the people by opening all the exit gates in a safe manner. It is also essential to bring about an increase in the employee awareness in the matters rel ated to the terrorist attacks so that they can understand the type, the source and the probability that is associated with the various threats and could assist the safety of the people without causing panic. The financial exposure that might be needed should be provided so that they might back up all the facilities and the insurance. The hospitality industry wherein people have been attacked when they enjoyed dinner comes second in the discussion. The primary attacks took place around 9:20pm and the risks might have been avoided thereby changing the consequences on hearing the sounds and the news. The majority of the people took it to be the sounds of fireworks, they did not anticipate it to be a terrorist attack. However, a little more concentration of the happenings on the outside and checking the news or distress calls and noticing the sounds immediately could have helped them to leave the caf, the bar and the restaurant before the arrival of the gunmen or in the least help them in protecting themselves by hiding under the tables or at the back door or might be somewhere else in the establishment. The tourists who visited Paris during the time, they could change the consequence if they had not visited the place in the first place. Tourists are always advised to seek knowledge about the current scenario of the decided place before actually visiting the place. This might have helped them to understand the possibility of the terrorist attack since according to BBC news France had faced another terrorist attack in the month of January. Hence, if the country had faced such major incidents in the previous year, the government should have alerted the tourism agencies as well as the private tourists by explaining to them the situations that might occur in case they visit the country in the mentioned period. Reference Bell, M., Vandoorne, S. (2016, November 13). Sting reopens Bataclan after Paris terror attacks. Retrieved November 02, 2017, from https://edition.cnn.com/2016/11/13/europe/paris-bataclan-sting/index.html Charlie Hebdo attack: Three days of terror. (2015, January 14). Retrieved November 04, 2017, from https://www.bbc.com/news/world-europe-30708237 Chazan, D. (2015, December 04). Paris cafe La Bonne Biere reopens after terror attacks. Retrieved November 02, 2017, from https://www.telegraph.co.uk/news/worldnews/europe/france/12032854/Paris-cafe-La-Bonne-Biere-reopens-after-terror-attacks.html France 24. (2016, February 07). Business down at Paris restaurant accused of selling attack video. Retrieved November 03, 2017, from https://www.france24.com/en/20160207-paris-attacks-casa-nostra-video-daily-mail Frej, W. (2016, March 21). Another Cafe Targeted In Paris Attacks Reopens, Ushering In Springtime. Retrieved November 01, 2017, from https://www.huffingtonpost.com/entry/belle-equipe-cafe-paris-reopens_us_56eff976e4b084c67220c57d Hosie, R. (2017, February 22). Paris tourist numbers drop due to fears over further terror attacks. Retrieved November 01, 2017, from https://www.independent.co.uk/travel/paris-tourist-numbers-drop-franch-terror-attacks-further-charlie-hebdo-bataclan-shooting-isis-a7592836.html Hunter, I. (2016, January 13). 'We must continue to live, to drink': Paris's Carillon cafe reopens for the first time since being attacked in the terror attacks that killed 130. Retrieved November 03, 2017, from https://www.dailymail.co.uk/news/article-3398373/We-continue-live-drink-Paris-s-Carillon-cafe-reopens-time-attacked-terror-attacks-killed-130.html Hurley, D. (2015, November 15). Paris attacks: Suicide bombers try to enter Stade de France during Germany and France football match. Retrieved November 2, 2017, from https://www.heraldsun.com.au/news/paris-attacks-suicide-bombers-try-to-enter-stade-de-france-during-germany-and-france-football-match/news-story/adf011dc46d35fcb54e0db2e658c14a4 Masanauskas, J. (2015, November 15). Paris attacks: Diners killed in Le Carillon and Le Petit Cambodge restaurants. Retrieved November 2, 2017, from https://www.heraldsun.com.au/news/paris-attacks-diners-killed-in-le-carillon-and-le-petit-cambodge-restaurants/news-story/78b5db3d89a75ed791f9d3d3839f49fc Paris attacks: What happened on the night. (2015, December 09). Retrieved November 01, 2017, from https://www.bbc.com/news/world-europe-34818994 Paris region loses 1.5 million tourists over terror fears. (2017, February 21). Retrieved November 02, 2017, from https://www.thelocal.fr/20170221/ile-de-france-paris-region-loses-1-5-million-tourists-to-terror-fears (2015, November 25). Brussels Lockdown: Metro Reopens, But Troops Remain on Streets. Retrieved November 03, 2017, from https://www.nbcnews.com/storyline/paris-terror-attacks/brussels-lockdown-metro-reopens-troops-remain-streets-n469376 Robinson, J., Landauro, I. (2015, November 15). Paris Attacks: Suicide Bomber Was Blocked From Entering Stade de France. Retrieved November 02, 2017, from https://www.wsj.com/articles/attacker-tried-to-enter-paris-stadium-but-was-turned-away-1447520571 Rodionova, Z. (2016, August 23). Paris loses 644m as tourists steer clear of the city after terror attacks. Retrieved November 04, 2017, from https://www.independent.co.uk/news/business/news/paris-isis-tourism-attacks-impact-money-lost-aftermath-a7205121.html Thompson, P. (2015, November 14). Sporting events in Paris postponed. Retrieved November 02, 2017, from https://www.goal.com/en-us/news/465/france/2015/11/14/17323672/all-weekend-sporting-events-suspended-in-paris?ICID=HP_BN_8 Steafel, E. (2015, November 21). Paris terror attack: Everything we know on Saturday afternoon. Retrieved November 01, 2017, from https://www.telegraph.co.uk/news/worldnews/europe/france/11995246/Paris-shooting-What-we-know-so-far.html Wyke, T. (2015, November 30). Terror attacks in Paris means visitor numbers across Europe tumble and France has already lost 1.4bn in tourism revenue . Retrieved November 01, 2017, from https://www.dailymail.co.uk/news/article-3338173/Terror-attacks-Paris-means-visitor-numbers-Europe-tumble-France-lost-1-4bn-tourism-revenue.html