Question
The difference between MM II (Modigliani Miller Model with Corporate Taxes) and Miller Model with Corporate and Personal Taxes is: a. MM II concludes that
The difference between MM II (Modigliani Miller Model with Corporate Taxes) and Miller Model with Corporate and Personal Taxes is:
a. MM II concludes that a capital structure with 100% debt is optimal but the Miller Model states that a capital structure with 100% equity is optimal.
b. MM II concludes that a capital structure with 100% equity is optimal but the Miller Model states that a capital structure with 100% debt is optimal.
c. Both conclude that a levered firm's value will be lower than an unlevered firm's but the size of that disadvantage is bigger in MM II's model.
d. Both conclude that a levered firm's value will be higher than an unlevered firm's but the size of that advantage is unknown in MM II's model.
e. They both conclude that debt increases value of the firm under the current tax code but the size of the advantage is different in the two models.
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