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The M&M theory of capital structure suggests that the way a firm finances its operations is irrelevant. However, in reality interest payments on debt are
The M&M theory of capital structure suggests that the way a firm finances its operations is irrelevant. However, in reality interest payments on debt are tax deductable (so leverage increases firm value). This suggests that M&M are wrong!!! Congress is considering a complete overhaul of the personal and corporate tax code that would eliminate all deductions and create a flat tax. If Congress passed this bill, would M&M be correct? Explain.
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