Despite MM’s original theory on the value of a company related to its capital structure, the theory assumed no taxes. In the lecture videos, I reviewed scenarios where there could be reasons why debt could help increase firm value. So, given corporate taxes, why could adding debt the capital structure increase firm value?
Group of answer choices
Earnings before interest and taxes are fully taxed at the corporate rate.
Personal tax rates are the same as marginal corporate tax rates
Extra cash flow goes to the firm’s investors rather than the tax authorities.
Earnings before interest and taxed at the corporate rate, and personal tax rates are the same as marginal corporate tax rates