Decision on the level of leverage and cash flow at this time will provide the company's cash flow impact in the future. In the signaling theory, decision in the leverage level is considered as positive signal to investors on the prospects of future cash flows (Ross, 1977; Harris and Raviv, 1991). In...

The paper provides review of Modigliani-Miller capital structure irrelevance proposition and its development since 1958. The paper suggests some pedagogical insights and introduce risk-shifting interpretations of the MM model. We also discuss shapes of cost of debt and cost of equity functions...