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As our example illustrates, the present value of the interest tax shield can be written as: Present value of the interest tax shield = (TC X D X RD)/RD [17.2]

We have now come up with another famous result, M&M Proposition I with corporate taxes. We have seen that the value of Firm L, VL, exceeds the value of Firm U, V^, by the present value of the interest tax shield, TC X D. M&M Proposition I with taxes therefore states that:

Taming Taxes

Taming Taxes

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