Define market value in modigliani miller equation, Financial Management

Define in the Modigliani-Miller equation (MM equation), why is the market value of the levered firm greater as compared to the market value of an equivalent unlevered firm?

The levered firm has a greater market value since less money is taken from the firm by the government in taxes because of tax-deductible interest payments.  So, there is more cash left for investor groups as compared to when the firm is financed along with all-equity funds.

Posted Date: 5/11/2013 1:26:52 AM | Location : United States

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