Chapter6 Leverage Decisions（PPT 31）.ppt

Chapter 6 Leverage Decisions
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Four trade-off equilibriums
Tax-bankruptcy cost equilibrium
Tax equilibrium(Miller equilibrium)
Tax-agency cost equilibrium
Tax-agency cost-information asymmetry cost equilibrium
START POINT: MM(1958) Irrelevance Theorem
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Taxation System in USA
Progressive taxation system for corporation e.
Double taxation on dividends for personal e.
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MM under e Tax(1963)
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Assumption
Definition of risk class
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Effect of e Tax
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Effect of e Tax on value of Securities
Without Leverage
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Effect of e Tax on value of Securities
Bond
Firm with Leverage
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Equilibrium with Arbitrage
If
Yield on portfolio 1(without leverage)
Alternative Portfolio(P2)
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Equilibrium with Arbitrage
Alternative Portfolio(P2)
Yield on P2
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