PPT Slide

Suppose investors are subject to the following tax rates: Td = 30% and Ts = 25%. What is the gain from leverage according to the Miller model?

Miller’s Proposition I:

VL = VU + [1 - ]D.

Tc = corporate tax rate.

Td = personal tax rate on debt income.

Ts = personal tax rate on stock income.

(1 - Tc)(1 - Ts)

(1 - Td)

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