Financial Leverage is Influenced by Tax Deductibility



Financial Leverage
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Olawale Christopher Olamiju
Financial Consultant, Nigeria

Financial Leverage is Influenced by Tax Deductibility

🔥NEW It is true that financial leverage could be used to magnify the rate of return on shareholders' equity as a result of the tax deductibility of interest payments.
The beauty of the extent to which financial leverage can be used in this perspective is better appreciated going by the various propositions of Modigiliani and Miller as well as the Trade Off theory.
 

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Jaap de Jonge
Editor, Netherlands
 

Influence of Modigliani–Miller Theorem on Financial Leverage

Hi Olawe, interesting.
Wikipedia says the Modigliani–Miller theorem is the basis for modern thinking on capital structure. The basic theorem states that, under a certain market price process (the classical random walk), in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed.
Could you please explain a bit further what is the meaning of the Modigliani–Miller theorem and Trade off theory for financial leverage?

 
4
ling
Student (MBA), Germany
 

Tax Shield is a Determinant to Determine the Leverage

@Jaap de Jonge (Editor): Modigiliani and Miller th...

 
0
Olawale Christopher Olamiju
Financial Consultant, Nigeria
 

Influence of Modigiliani and Miller on Financial Leverage

@Jaap de Jonge (Editor) : the definition in Wikipe...

   

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