TAILIEUCHUNG - Lecture Investment analysis & portfolio management - Chapter 22

Modigliani and Miller revised their arguments to allow for the fact that there is tax relief on interest. You do not need to know the arguments they used to reach their conclusions, but you must know what their conclusions were. You should also know and be able to apply the formulae described below. | Investment Analysis Lecture: 22 Course Code: MBF702 1 Outline RECAP MODIGLIANI AND MILLER’S THEORY MM’s Theory with tax Modigliani and Miller revised their arguments to allow for the fact that there is tax relief on interest. You do not need to know the arguments they used to reach their conclusions, but you must know what their conclusions were. You should also know and be able to apply the formulae described below. Modigliani and Miller argued that allowing for corporate taxation and tax relief on interest, an increase in gearing will have the following effect: As the level of gearing increases, there is a greater proportion of cheaper debt capital in the capital structure of the firm. However, the cost of equity rises as gearing increases. As gearing increases, the net effect of the greater proportion of cheaper debt and the higher cost of equity is that the WACC becomes lower. Increases in gearing result in a reduction in the WACC. MM’s Theory with tax The WACC is therefore at .

• Tài chính doanh nghiệp
• Investment analysis
• Portfolio management
• Investment management
• Investment theory
• Investment environment
• Investment analysis
• Investment companies
• Time value of money
• Characteristics of investment
• Investment portfolio management
• Investment analysis & portfolio management
• Investment background
• Developments in investment theory
• Management of common stocks