Miller Model with Corporate and Personal Taxes An unlevered firm has a value of
ID: 2758405 • Letter: M
Question
Miller Model with Corporate and Personal Taxes
An unlevered firm has a value of $600 million. An otherwise identical but levered firm has $110 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 20%, and the personal tax rate on debt is 30%?
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. Please show work.
ANSWER: $ ___ million
Explanation / Answer
Vl = Vu + {1-(1-tc)*(1-ts)/(1-tb)} *B
= 600 + {1-(1-.34)*1-.20)/(1-.30)}*110
= 600 + (0.2457 *110)
= 600 + 27.02857
= 627.02857 million
S.no Capital structure Unlivered Livered 1 Equity 600 490 2 Debt 110 Total 600 600 Corporate tax, Tc 34% Personal taxes Ts 20% Tb 30% As per Miller approach, if (Corporate Tax, tC 0; Personal Tax, tB 0; tS 0):