Modigliani-Miller (MM) formula for after-tax discount rate is given by:

Question

Quizplus · Accepted Answer

The Modigliani-Miller (MM) formula for after-tax discount rate is rMM = r(1 - TCD/V), where r is the before-tax required rate of return, TCD is the corporate tax rate, and V is the value of the firm. This formula adjusts the before-tax required rate of return (r) by the tax shield provided by deductible interest payments (TCD/V), resulting in a lower after-tax discount rate (rMM). Therefore, the correct choice is A.

Modigliani-Miller (MM) Formula for After-Tax Discount Rate Is Given By