Asif
09-03-08, 11:52 PM
Miller nd modigliani or modiglani ...whateva....
I have got a problem understanding bout his theory -
I have done a extensive research of what he said in his theory but dont understanding one thing
I found out What he sees is the total income by investor as a whole but not as separatly like debtholders or equity holders.
1) the tax saving does not do ne good to the equtity holders as bcoz maybe interest is a tax benefit but it reduces the net profit. So equity holders going to get less return...... right or wrong ?? (as bcoz it is the net profit the shareholders going to get as a dividend).
2) the value of tax shield (value of tax benefit) is added to the value of equity....but not to the value of debt.....y in equity ?? is it bcoz of arbitage i.e. the same person will buy debt and equity. (i am having serious difficulty in understand this concept i.e. added to value of equity).
I have got a problem understanding bout his theory -
I have done a extensive research of what he said in his theory but dont understanding one thing
I found out What he sees is the total income by investor as a whole but not as separatly like debtholders or equity holders.
1) the tax saving does not do ne good to the equtity holders as bcoz maybe interest is a tax benefit but it reduces the net profit. So equity holders going to get less return...... right or wrong ?? (as bcoz it is the net profit the shareholders going to get as a dividend).
2) the value of tax shield (value of tax benefit) is added to the value of equity....but not to the value of debt.....y in equity ?? is it bcoz of arbitage i.e. the same person will buy debt and equity. (i am having serious difficulty in understand this concept i.e. added to value of equity).