MM's proposition 1 suggests that in the absence of taxes it makes no difference whether the firm

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MM's proposition 1 suggests that in the absence of taxes it makes no difference whether the firm borrows on behalf of its shareholders or whether they borrow directly. However, if there are corporate taxes, this is no longer the case. Construct a simple example to show that with taxes it is better for the firm to borrow than for the shareholders to do so.

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Fundamentals of Corporate Finance

ISBN: 978-0077861629

8th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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