DSCG FINANCE PROPOSITION 1 DE MODIGLIANI ET MILLER

📐 Modigliani-Miller Theorem — Proposition 1 (1958) In 1958, Franco Modigliani and Merton Miller published one of the most important articles in the history of corporate finance. Their Proposition 1 establishes a surprising result: in perfect financial markets, the value of a firm is independent of its financing structure. Whether the firm is 100% financed by equity or uses a mix of equity and debt, its total value remains the same. Denoting V_E as the value of the leveraged firm and V_NE as the value of the unlevered firm: V_E = V_NE The proof relies on an arbitrage argument: if the two values ​​diverged, an investor could realize a guaranteed gain without spending a single euro—what is called an Arbitrage Opportunity (AO). In perfect markets, such an opportunity cannot last. 🍕 To understand it intuitively: the value of a company is like a pizza. Its size depends on the quality of its assets—not on how it's divided between shareholders and creditors. In this video, we build the demonstration step by step using the concrete example of a €1,000,000 building, with precise figures and reasoning accessible to everyone. 🎓 Part of the DCG and DSCG Finance courses ✍️ Saïd Chermak — infomaths.com