The tax subsidy to debt: This was discussed in Chapter 15, where we pointed out that for
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The tax subsidy to debt: This was discussed in Chapter 15, where we pointed out that for perpetual debt the value of the tax subsidy is tCB. (tC is the corporate tax rate, and B is the value of the debt.) The material about valuation under corporate taxes in Chapter 15 is actually an application of the APV approach. LO.1
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