Miller Model with Corporate and Personal Taxes An unlevered firm has a value of
ID: 2791871 • 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 $180 million in debt. Under the Miller model, what is the value of the levered firm if the corporate tax rate is 40%, the personal tax rate on equity is 25%, 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.
$ _______ million
Explanation / Answer
Value of leverage firm = Value of unleverage firm + [1 - {(1-Tc) * (1-Ts) / (1-Tb)} ] * B
Tc = corporate tax
Ts = tax on equity
Tb =tax on bonds
B = value of debt
Vl = 750 + [1-{(1-0.4)*(1-0.25) / (1-0.3) ] *180
=750 + [1-{(0.6)(0.75)/(0.7)}] * 180
=750+[1-0.6429]*180
=750+(0.357)(180)
=750+64.29
=814.29$