The Miller model begins with the MM model with taxes and then adds personal taxes. True or False?

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Business

Lana

26 November, 19:07

The Miller model begins with the MM model with taxes and then adds personal taxes. True or False?

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Answers (1)

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Hayden Mathews · Answer 1

The statement is: True.

Explanation:

The Modigliani-Miller (M&M) Theorem is used in financial and economic studies to analyze the value of a firm such as a business or a corporation. The M&M theorem states that a firm's value is based on its ability to earn revenue plus the risk of its underlying assets. Thus, the way a company finances its operations should not affect its value.

When it comes to taxes, the M&M theorem states that the capital structure of a company is not affected when there are no taxes. The theorem starts with the corporate taxes to then relate the approach to personal taxes.