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Famous as Economist Born on16 May 1923 Born in Boston, Massachusetts Nationality United States Field Economics Works & Achievements Modigliani-Miller Theorem, Nobel Prize Recipient Influenced Eugene Fama Michael Jensen Richard Roll Myron Scholes Died on 03 June 2000

Born in Boston, Massachusetts on May 16, 1923, Merton Miller was born to Joel and Sylvia Miller. His father was an attorney and a graduate from Harvard University. Merton followed his father’s footsteps and enrolled in Harvard in 1940. Here, he studied economics and not law. Miller’s classmate was Robert M. Solow, a noted laureate of economic sciences

After receiving his bachelor’s degree in 1943, Miller worked as an economist in the Treasury Department and the Federal Reserve  Nine years later, in 1952, Merton acquired his Ph.D. in Economics from the John Hopkins University  In 1958, Miller collaborated with his colleague, Frank Modigliani PRESENT, the ModiglianiMiller theorem (M&M )

Following this marvellous proposition, in 1961, Miller became a professor at the Graduate School of Business, University of Chicago. It was during this time that Miller began writing and co-authoring books and had eight of them published under his name. From 1966-1967, Merton worked as a Professor of Economics in the University of Louvain, Belgium

Merton Miller was married to Eleanor and they had three daughters After his first wife’s death in 1969, Miller married a woman named Katherine. His daughters, grandsons, his wife and he lived in a townhouse in Hyde Park. He also owned a working farm in Woodstock, Illinois. In his spare time, Miller indulged in bush cutting and gardening

Received Nobel Memorial Prize in Economic Sciences in 1990

the value of a firm is unaffected by how that firm is financed. It does not matter if the firm's capital is raised by issuing stock or selling debt. It does not matter what the firm's dividend policy is. Therefore, the Modigliani–Miller theorem is also often called the capital structure irrelevance principle. BUT THIS DEFINITION COMPLETES UNDER FOLLOWING ASSUMPTIONS

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No taxes No transaction costs No bankruptcy costs Equivalence in borrowing costs for both companies and investors Symmetry of market information, meaning companies and investors have the same information No effect of debt on a company's earnings before interest and taxes

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WITH TAXES Proposition I: where is the value of an unlevered firm = price of buying a firm composed only of equity, and is the value of a levered firm = price of buying a firm that is composed of some mix of debt and equity.

Ke is the required rate of return on equity, or cost of equity. Ko is the company unlevered cost of capital (ie assume no leverage). Kd is the required rate of return on borrowings, or cost of debt. D/E is the debt-to-equity ratio

where  VL is the value of a levered firm.  Vu is the value of an unlevered firm.  TcD is the tax rate (Tc ) x the value of debt (D)  the term TcD assumes debt is perpetual This means that there are advantages for firms to be levered, since corporations can deduct interest payments. Therefore leverage lowers tax payments. Dividend payments are nondeductible


rE is the required rate of return on equity, or cost of levered equity = unlevered equity + financing premium. ro is the company cost of equity capital with no leverage (unlevered cost of equity, or return on assets with D/E = 0). rD is the required rate of return on borrowings, or cost of debt. D/E is the debt-to-equity ratio. Tc is the tax rate.

Bankruptcy costs  Agency costs  Debt and the incentive to manage efficiently  Institutional restrictions  Transaction costs

Miller died on June 3, 2000 of lymphoma at the age of 77. The dean of the Chicago University, Robert Hamada, said, “Miller was the founder of modern finance and the person who fathered the discipline from an institutional field of study to one that is truly a legitimate and well-accepted part of economics and business

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1923: Merton H. Miller was born on May 16 in Boston, Massachusetts. 1943: He received his bachelor’s degree from Harvard University and worked in the Treasury Department and Federal Reserve. 1952: Received a Ph.D. in Economics from John Hopkins University. 1958: Modigliani-Miller Theorem was proposed in the paper ‘The Cost of Capital, Corporate Finance and Theory of Investment’. 1961: Appointed as ‘Robert R. McCormick Service Professor’ at the Graduate Business School in Chicago University was given to him. 1966-1967: Worked as a Professor of Economics in the University of Louvain, Belgium.

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1975: Miller became a Fellow of the Econometric Society. 1976: He was appointed President of the American Finance Association. 1983-1985: Served as the Public Director of the Chicago Board of Trade. 1987: Miller joined the Chicago Mercantile Exchange as Chairman for a post-mortem report on the Crash of October 19-20. 1990: Merton Miller, became the Public Governor of the Chicago Mercantile Exchange. The same year, he won the Nobel Memorial Prize for Economics, along with Harry Markowitz and William Sharpe. 1993: He retired from the University Of Chicago Graduate School Of Business. 2000: June 3, at the age of 77, Miller died of lymphoma

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