According to MM, in the absence of financial distress, the value of a firm increases steadily with financial leverage if interest expense is tax-deductible.

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This is known as the Modigliani-Miller Proposition I with Taxes (MM I with Taxes), which states that the value of a firm will increase with financial leverage since interest payments are tax deductible, leading to a reduction in the firm's tax liabilities.

According to MM, in the Absence of Financial Distress, the Value