Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Hi. I am trying to understand Millers point of view from the 1977 paper. Could someone explain to me why we divide the equation to (1-tax on interest)?
Thank you.
![and a fixed annual interest payment, we
would get the present value of the Interest Tax
Shield as:
PV (Interest Tax Shield ) = [(1−t;)−(1−tc )(1-tg )]×r„D
r(1-T₁)
Finally, the Effective Tax Advantage of Debt](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ce30154-76ec-49f2-ad17-362e443787b9%2Fded568d5-8085-4867-b4a1-5c3dbe76b73c%2F7tcdepk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:and a fixed annual interest payment, we
would get the present value of the Interest Tax
Shield as:
PV (Interest Tax Shield ) = [(1−t;)−(1−tc )(1-tg )]×r„D
r(1-T₁)
Finally, the Effective Tax Advantage of Debt
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