MM's Proposition I corrected for the inclusion of corporate income taxes is expressed as A)V_L = V_U. B)V_L = V_U + D(1 − T_C). C)V_L = V_U + (T_C)(D). D)V_U = V_L + (T_C)(D).

Question

Quizplus · Accepted Answer

MM's Proposition I with taxes states that the value of a leveraged firm (V_L) is equal to the value of an unleveraged firm (V_U) plus the tax shield on debt, which is (T_C)(D).

MM's Proposition I Corrected for the Inclusion of Corporate Income