MM's proposition 1 suggests that in the absence of taxes it makes no difference whether the firm
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MM's proposition 1 suggests that in the absence of taxes it makes no difference whether the firm borrows on behalf of its shareholders or whether they borrow directly. However, if there are corporate taxes, this is no longer the case. Construct a simple example to show that with taxes it is better for the firm to borrow than for the shareholders to do so.
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Suppose the firms tax bracket is 35 while shareholders tax bracket is 27 The firm has EBIT per share ...View the full answer
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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