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In a world with no taxes, Modigliani and Miller (MM) show that a firm's capital structure does not affect its value. However, when taxes are considered, MM show a positive relationship between debt and value, i.e., the firm's value rises as it uses more and more debt, other things held constant.
A. True
B. False

Respuesta :

Answer:

true

Explanation:

with taxes, the value of a company increases as more debt is used. the value of a company with debt is greater than the value of the company without debt for the same level of operating income.

according to the MM proposition, the value of the company with tax = Vu + tD

Where Vu is value of unlevered company and tD is tax rate multiplied by debt . tD is known as tax shield. As debt increases, the value of the tax shield increases and the value of the company increases

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