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Basic Question 2 of 18
The positive value to the firm of adding debt to the capital structure in the presence of corporate taxes is:
B. due to the earnings before interest and taxes being fully taxed at the corporate rate.
C. because personal tax rates are the same as corporate tax rates.
D. because shareholders prefer to let financial managers choose the capital structure thus making their value independent of it.
A. due to the extra cash flow going to the investors of the firm instead of the tax authorities.
B. due to the earnings before interest and taxes being fully taxed at the corporate rate.
C. because personal tax rates are the same as corporate tax rates.
D. because shareholders prefer to let financial managers choose the capital structure thus making their value independent of it.
User Contributed Comments 1
| User | Comment |
|---|---|
| sarath | The tax rebate on the debt interest payments effectively means that money which should have gone to the tax authorities is going to the investors of the firm.... |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain the Modigliani-Miller propositions regarding capital structure
CFA® 2025 Level I Curriculum, Volume 2, Module 6.