Modigliani and Miller followed up their initial work with a new model that incorporated a world with corporate taxes. Which of the statements below result from this model?
A) A new Proposition I with taxes and it states: All debt financing is optimal.
B) A new Proposition II with taxes and it states: The WACC of the firm falls as more debt is added.
C) The more debt sold, the greater the tax shield and the smaller the government's share of the firm.
D) All of these

Question

Quizplus · Accepted Answer

Modigliani and Miller's model with corporate taxes concluded that all debt financing is optimal, with a new Proposition I, and that the WACC of the firm falls as more debt is added, with a new Proposition II. Additionally, the model found that the more debt sold, the greater the tax shield, and the smaller the government's share of the firm.

Modigliani and Miller Followed Up Their Initial Work with a New