Dear Sir John Moffat,
in MM with tax & unlevered firm with personal tax on equity scenario:
why do we say that personal taxes on equity doesn't effect the value of unlevered firm?
because of personal tax on equity the profit in the hands of equity holders shrinks while Ke remaining same the value of the unlevered firm must also shrink as well..!!
but why do we adjust(minimize) Ke for personal tax on equity?...minimizing Ke for personal tax on equity will keep the value of unlevered firm unchanged BUT its doesn't make any sense to me to adjust(minimize) Ke for personal tax on equity, why will the required rate of equity holders (Ke) will decrease due to personal tax on equity?
will u plz elaborate the reason behind that.
Thanks in advance
Ask the Tutor ACCA AFM
MM with tax & unlevered firm with personal tax on equity
3y ago#1I do not know who is saying that - I certainly do not say it in my lectures!!
The effect of personal taxes is not examinable in Paper AFM. I do mention them in relation to M&M in my lectures, but only out of interest and not because they are examinable.
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