According to Modigliani-Miller (without taxes), what determines a firm’s total market value?

💡 Explanation:

Modigliani-Miller (MM) Proposition I, in a world without taxes or market imperfections, states that a firm's market value is independent of its capital structure. Instead, the firm's value is determined by the present value of its expected operating earnings (income) and the risk of its underlying assets (risk class), often expressed as the EBIT discounted by the unlevered cost of equity (or cost of assets/business risk). This is because investors can use 'homemade leverage' to replicate the returns of any corporate capital structure.