CHAPTER 14Capital Structure Decisions: Extensions

11/14/97

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Table of Contents

CHAPTER 14Capital Structure Decisions: Extensions

Who are Modigliani and Miller (MM)?

What assumptions underlie the MMand Miller models?

Notes about Propositions

How does this gain compare to the gain in the MM model with corporate taxes?

When Miller brought in personal taxes, this lowered the value enhancement of debt. Why?

Capital Structure Policy Recommendations

Define financial distress andagency costs.

How do financial distress and agency costs change the MM and Miller models?

Here’s a valuation model which includes financial distress and agency costs.

Relationships between capital costs and leverage considering financial distress and agency costs.