The Modigliani-Miller (MM)formula for the after-tax discount rate, for the case of fixed perpetual debt, is given by

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The Modigliani-Miller theorem with taxes suggests that the cost of equity decreases with the tax shield provided by debt. The correct formula for the after-tax discount rate with fixed perpetual debt is r(1 − T_CD/V), where T_C is the corporate tax rate, D is the debt, and V is the total value of the firm.

The Modigliani-Miller (MM)formula for the After-Tax Discount Rate, for the Case