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The M&M theory of capital structure suggests that the way a firm finances its operations is irrelevant. However, in the United States interest payments on
The M&M theory of capital structure suggests that the way a firm finances its operations is irrelevant. However, in the United States interest payments on debt are tax deductible (so leverage effects firm value). This suggests that M&M are wrong!!! If Congress passed a bill that would eliminate the tax deductibility of interest, M&M would be correct that capital structure does not effect firm value.
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