Modigliani and Miller's analysis of the tax deductible nature of debt suggested that firm value would:

Question

Quizplus · Accepted Answer

Modigliani and Miller's analysis suggests that the tax deductibility of debt would increase the firm value as the firm's use of debt increased. This is because interest paid on debt is tax deductible, thereby reducing the firm's tax liability and increasing its cash flows, which in turn increases its value.

Modigliani and Miller's Analysis of the Tax Deductible Nature of Debt