fm17 17 - and B(2 under the MM with-tax model Answer With...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Figure 1 Without Taxes 0% 5% 10% 15% 20% 25% 0% 20% 40% 60% Debt/Value Ratio Cost of Capital rs WACC rd 4 3 2 1 0 0.5 1.0 1.5 2.0 2.5 Firm Value ($3.6 Million) Value of Firm, V (Millions of $) V U V L ($) Debt ($) Figure 2 c. Using the data given in part B, but now assuming that firms L and U are both subject to a 40 percent corporate tax rate, repeat the analysis called for in B(1)
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: and B(2) under the MM with-tax model. Answer: 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 - T)(D/S). Mini Case: 17 - 17...
View Full Document

This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

Ask a homework question - tutors are online