What capital structure model demonstrates that in perfect capital markets without taxes or transaction costs, firm value is independent of capital structure?

Explanation

• Modigliani-Miller Proposition I (1958) proves that under perfect market assumptions (no taxes, no transaction/bankruptcy costs), capital structure choice does not affect firm value.
• When corporate taxes are introduced (MM Proposition II with taxes), tax deductibility of interest payments creates a debt tax shield that increases firm value.
• Real-world financial management balances tax shields against financial distress costs.