Problem 21-3 Miller Model with Corporate and Personal Taxes An unlevered firm ha

Question

Problem 21-3 Miller Model with Corporate and Personal Taxes An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $290 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 35%? 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

anw is not 966 million or 924.50

Explanation / Answer

Vl = Vu + {1-(1-tc)*(1-ts)/(1-tb)} *B

= 850 + {1-(1-.40)*(1-.25)/(1-.35)}*290

= 850 + (0.3077*290)

= 850 + 89.23

= 939.23 million

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