With the inclusion of taxes,MM I is incorrect and the capital structure of the firm can be important due to:
A) lower tax rates on dividends than on debt.
B) higher tax rates on retained earnings than on debt.
C) lower tax liability due to interest deductibility.
D) higher operating income from less dividends.

Question

Quizplus · Accepted Answer

With the inclusion of taxes, the capital structure of the firm can be important due to lower tax liability as a result of interest deductibility. This means that the interest paid on debt can be deducted from taxable income, which reduces the amount of tax paid by the company. Therefore, a higher proportion of debt in the capital structure can lead to lower taxes paid and higher after-tax profits.

With the Inclusion of Taxes,MM I Is Incorrect and the Capital