Question: Internationally, we observe Interest Expense/EBIT ratios 40%. a. Explain how this observation is not consistent with the theoretical implications of Modigliani and Miller (1963). b.

Internationally, we observe Interest Expense/EBIT ratios 40%.

a. Explain how this observation is not consistent with the theoretical implications of Modigliani and Miller (1963).

b. List some real-world factors that may account for the discrepancy between the observation of how firms really behave and how they should behave in M&Ms 1963 model with corporate taxes and perfect markets.

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