Question: Why does MM Proposition I not hold in the presence of corporate taxes? a. Earnings per share are no longer relevant with taxes. b. Dividends

Why does MM Proposition I not hold in the presence of corporate taxes?

a.

Earnings per share are no longer relevant with taxes.

b.

Dividends are no longer relevant with taxes.

c.

Bondholders require higher rates of return compared with stockholders.

d.

Levered firms pay lower taxes when compared with identical unlevered firms.

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