What does the Miller model with personal and corporate taxes imply about value relative to the MM model with just corporate taxes?

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What does the Miller model with personal and corporate taxes imply about value relative to the MM model with just corporate taxes?

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What does the Miller model with personal and corporate taxes imply about value relative to the MM model with just corporate taxes?

Explanation & AnswerSolution by a verified expert

Explanation

Firm's value in MM theory with corporate and personal tax is increased as less tax is paid to the government as compared in the MM theory with corporate tax.
MM theory with corporate and personal tax assumes that if interest is paid to debenture holders and also the personal taxes then this would reduce the tax payment to the government.

Verified Answer

MM theory with corporate and personal tax states that there are both personal taxes and interest payments that are made to investors and are treated as income to the investors whereas MM theory with corporate tax includes only interest payments on the bonds.

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