MM Proposition II with corporate taxes
MM Proposition II with corporate taxes is the equation rsL = rsU + (rsU − rd)(1 − T)(D/S). Here the increase in equity costs is less than the zero-tax case, and the increasing use of lower-cost debt causes the firm's cost of capital to decrease. In this case, the optimal capital structure is virtually all debt.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- MM Proposition II with corporate taxes rsL = rsU + (rsU − rd)(1 − T)(D/S). Here the increase in equity costs is less than the zero-tax case, and the increasing use of lower-cost debt causes the firm's cost of capital to decrease. In this case, the optimal capital structure is virtually all debt.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
