The M&M theory suggests that the value of the firs assets is equal to the value

Question

The M&M theory suggests that the value of the firs assets is equal to the value of the claims on those assets & is not dependent on how the aaste claims are divided. Common analogy to the theorem is that the total amount of pie available to be eaten does not depend on the size of each slice of pie. If we cut up the pie with a very dull knife such that the amount of pie available to be eaten is less after it is cut that before it was cut. Which of the 3 M&M assumptions, if relaxed, is analogous to the dull knife?

b- describe what exactly is meant when someone is describing the value of the firm versus the value of the equity of the firm.

Explanation / Answer

the value of firm is not equal to the total value off equity because in converting the equity there is lots of transaction cost required which is wasted and are not counted in value of firm.

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