Assignment 6 Chapter 16 Capital Structure Decisions Back to Assignment sy Tools Attempt Keep the Highes73 8. Modigliani and Miller models ips After Modigliani and Millers (1) original no-tax theory, they went on to develop another theory that included corporate taxes. Subsequently, Miller developed another theory that included the effects of both corporate and personal toxes. ps the benefit Complete the following sentence based on your understanding for the MM Model with corporate taxes: When personal taxes are included in the MM model, the taxes that stockholders pay on their bond and equity income will offset created by the tax savings on corporate debt. Doggle Due Lending Company has no debt, and a value of $65.000 milion, Fat Cats Bankshares is otherwise identical but has $26.000 million of debt in a capital structure. Under the different models, what is the value of Fat Cats Bankshares if its corporate tax rate is 25%, the personal tax rate on equity is 12%, and the personal tax rate on debt 18 274? (Note: Do not round intermediate calculations.) n Time is Fat Cats Bankshares Value $21.500 million Model MM without taxes MM with corporate taxes Miller with corporate and personal taxes Consider the following information: Miller with corporate and personal taxes Consider the following information: Adding personal taxes to the modellowers, but does not eliminate the benefit from corporate debt. In the United States, taxes on capital gains are lower than on ordinary income and can be deferred. The effective rate on stock income is normally less than that on bond income, and although the personal tax on debt will lower the gain from corporate debt, it is not usually enough to eliminate Therefore, there is still a gain from leverage uning Miller's model, as well as the MM model with corporate tax, Is the preceding information correct? Yes O No Grade It Now Save & Continue Continue without saving