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Mathematical analysis of the Miller-Modigliani theory |
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| Authors: | SP Sethi NA Derzko JP Lehoczky |
| Institution: | Faculty of Management Studies, University of Toronto, Toronto M5S 1V4, Canada;Department of Mathematics, University of Toronto, Toronto M5S 1V4, Canada;Department of Statistics, Carnegie-Mellon University, Pittsburgh, PA 15213, U.S.A. |
| Abstract: | This paper provides a rigorous mathematical treatment of the problem of valuation of a firm in a deterministic, partial equilibrium framework. It is shown that the dividend and arbitrage approaches to valuation are not equivalent in general. A necessary and sufficient condition for their equivalence is also obtained. |
| Keywords: | Financial valuation Miller-Modigliani Theory dividend approach arbitrage approach cash flow approach Corporate Finance |
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