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  3. 2. (5 points) m&m described the relationship b

2. (5 points) M&M described the relationship between capital structure and firm value, in a...

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Accounting

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2. (5 points) M&M described the relationship between capital structure and firm value, in a world with corporate taxes, as follows: V1 = Vu+ TD (where t is the corporate tax rate and D is the firm's amount of debt). Note that they also said VL = Vu when there were NO corporate taxes. Explain what you think this formula says about the relationship between firm debt usage and firm value. Then explain one aspect of the real world that discourages firms from maxing out their debt use. Note there are many aspects of the real world that do this - the question is just asking you for one

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