Capital Structure: Modigliani and Miller in a World With Taxes

In this video, I explain how introducing corporate and personal taxes changes the Modigliani–Miller capital structure framework. We examine how the corporate tax deduction for interest creates a benefit to debt financing, while differences in personal taxes on interest and equity income can reduce or offset that benefit. We explore how these competing tax effects influence the value of a levered firm relative to an unlevered firm and the overall tax advantage of debt.