As a financial analyst at Global Investments, I often leverage the Modigliani-Miller Theorem (M&M) to evaluate potential investment opportunities. A pertinent example is when we were assessing a tech start-up for investment. The company had substantial debt on its balance sheet, which was raising concerns among some colleagues.
To address this, we decided to evaluate the firm's value by applying the M&M theorem. We used financial modeling in Excel to simulate different capital structures while keeping the operating income constant. The results, in line with the M&M theorem, indicated that the firm's value remained unchanged regardless of the debt level.
This analysis allowed us to focus more on the company's future earning potential and less on its current capital structure. Our investment team eventually proceeded with the investment, which turned out to be highly successful, as the start-up continued to generate strong revenues and eventually paying off its debts.