Modigliani and Miller (MM) show that in the presence of corporate taxes the value of the firm will get…
With corporate taxes in the MM model, the levered firm has a higher value than the otherwise equivalent unlevered firm. Deductible interest creates a tax shield, whose…
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Modigliani and Miller (MM) show that in the presence of corporate taxes the value of the firm will get affected with debt due to the deductibility of interest charges for tax computation, and as a result :
Answer and explanation
Correct answer B
With corporate taxes in the MM model, the levered firm has a higher value than the otherwise equivalent unlevered firm. Deductible interest creates a tax shield, whose present value adds to the value of the unlevered firm.
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Jammu & Kashmir and Ladakh SET (JKSET/LASET)