Question: Using the data given in part b, but now assuming that Firms L and U are both subject to a 40% corporate tax rate, repeat
Using the data given in part b, but now assuming that Firms L and U are both subject to a 40% corporate tax rate, repeat the analysis called for in b-(1) and b-(2) under the MM with-tax model.
David Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies average about 30% debt, and Mr. Lyons wonders why they use so much more debt and how it affects stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant:
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With corporate taxes added the MM propositions become Proposition I V L V U TD Proposition II r sL r sU r sU r d 1 TDS There are two very important di... View full answer
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