Miller Model with Corporate and Personal Taxes An unlevered firm has a value of
ID: 2749442 • Letter: M
Question
Miller Model with Corporate and Personal Taxes
An unlevered firm has a value of $750 million. An otherwise identical but levered firm has $160 million in debt. Under the Miller model, what is the value of the levered firm if the corporate tax rate is 34%, the personal tax rate on equity is 10%, and the personal tax rate on debt is 35%? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
$_______ million
Explanation / Answer
As per Miller Model :
Value of levered firm (VL) = Value of unlevered firm(VU) + [1- { (1-Tc) * (1-Te) / (1-Td) } ] * Value of Debt (D)
= 750 + [1 - { (1-.34) * (1-.10) / (1-.35) } ] * 160
= $ 763.78 million (answer)