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Franco Modigliani: 2 ideas worth knowing

2 ideas from Franco Modigliani, each explained in a minute and credited to the original work. Free on Savvy.

• How a company pays for itself shouldn't change what it's worth

  Modigliani and Miller proved that, under idealized conditions with no taxes or bankruptcy costs, a firm's total value is the same whether it's financed mostly with debt or mostly w…

  — Franco Modigliani & Merton Miller, The Cost of Capital, Corporation Finance and the Theory of Investment

• Modigliani: people save for retirement decades before they need the money

  Franco Modigliani and Richard Brumberg argued in 1954 that people try to keep spending roughly stable across their whole life, borrowing as students, saving through peak-earning ye…

  — Franco Modigliani and Richard Brumberg, Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data

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