[Verse 1]
Franco met Merton in a boardroom bright
Two minds debating through the corporate night
"Does leverage matter?" Franco asked with glee
"In perfect markets, let me guarantee"
[Chorus]
Value equals EBIT over cost of capital
Proposition One says structure's not magical
Debt or equity, the pie stays the same size
M and M without taxes, open up your eyes
Capital structure irrelevance applies
[Verse 2]
Merton drew circles on the whiteboard clean
"Arbitrage will balance what you've never seen
If Company A's leveraged, Company B is not
Investors make their own, they'll trade what you forgot"
[Chorus]
Value equals EBIT over cost of capital
Proposition One says structure's not magical
Debt or equity, the pie stays the same size
M and M without taxes, open up your eyes
Capital structure irrelevance applies
[Bridge]
Proposition Two climbs the linear slope
Cost of equity rises, don't abandon hope
WACC stays constant like a steady drum
Risk premium grows as debt ratios come
[Verse 3]
Perfect markets mean no friction in the trade
No bankruptcy costs, assumptions cleanly made
Homogeneous expectations across the land
Information flows freely through every hand
[Chorus]
Value equals EBIT over cost of capital
Proposition One says structure's not magical
Debt or equity, the pie stays the same size
M and M without taxes, open up your eyes
Capital structure irrelevance applies
[Outro]
Modigliani-Miller built the foundation stone
In their perfect world, financing stands alone
Remember the lesson when markets seem complex
Structure doesn't matter in their theoretical specs