Corporate Finance: The Modigliani Miller Proposition I

Introduction
According to my research in corporate finance, capital structures decision is ranked as the most influential issue facing executives at the management level. The corporate finance is described as an area of finance that deals with financial decisions and tools and analytics used in making the decisions. The discipline is divided into long-term and short-term decisions and techniques with their primary goal being maximization of the corporate value while at the same time in management of the firm’s financial risks. Corporate finance is a theory, process and techniques which corporations use to invest, finance and make dividend decisions and thus they make decisions on what projects to invest, then they figure out how to finance

However, the firm’s value is determined by the real assets and not by the securities issues. In short, it is assumed that the decisions involving capital structure are very irrelevant as long as the firm takes investment decisions as they are set (McCauley, 2004).
Miller and Modigliani in the year 1958 made an explanation that the theorem was proven in the absence of taxes. The theorem was/is made up of two propositions which

The debt-equity ratio is usually used to show the amount of debt that a company uses to finance its assets which are relative to the amount that is represented in the shareholder equity. In accounting and finance, the term equity is defined as the difference between the value of a firm's assets and the given costs of liabilities of the owned asset. Shareholder equity, however, is the equity of a given company that is divided among shareholders who appear in a common market or stock. The formula used to calculate the debt equity ratio is; Debt-equity ratio=total liabilities/shareholder equity. The result is expressed as a percentage. The form of D/E is usually referred to as gearing or risk.
Given that a firm's debt-equity ratio is used to measure the debt of a company which is relative to the value of the firm’s stock, this tool is often used to gauge the extent in which the firm takes on debts as a means of leveraging. An increase in the debt equity ratio means that a firm has been in an aggressive mode in making finances for its growth with debts. When there are aggressive leveraging practices, it means that the firm is associated with high levels of