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 $650 million. An otherwise identical but levered firm has $180 million in debt. Under the Miller model, what is the value of the levered firm if the corporate tax rate is 34%, the personal tax rate on equity is 20%, and the personal tax rate on debt is 30%? 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

Explanation / Answer

Value of levered firm = $650 millions + 34% * $180 million

= $711.20 million

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