15-4 M&M(debt Policy Doesnt Matter) Assumptions O By issuing 1 security rather than 2,company diminishes investor choice. This does not reduce value if Investors do not need choice OR There are sufficient alternative securities S Capital structure does not affect cash flows e.g → No taxes → no bankruptcy costs )No effect on management incentives Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 15- 4 Irwin/McGraw-Hill M&M (Debt Policy Doesn’t Matter) Assumptions By issuing 1 security rather than 2, company diminishes investor choice. This does not reduce value if: ➔ Investors do not need choice, OR ➔ There are sufficient alternative securities Capital structure does not affect cash flows e.g... ➔No taxes ➔No bankruptcy costs ➔No effect on management incentives