Editing Modigliani–Miller theorem (section)

===Proposition I===

:<math>V_L =V_U + T_C D\,</math>

where

* <math>V_L</math> ''is the value of a levered   firm.''
* <math>V_U</math> ''is the value of an unlevered firm.''
* <math>T_C D</math> ''is the tax rate (<math>T_C</math>) x the value of debt (D)"
 Derivation of <math>T_C D</math>- 
 Amount of Annual Interest= Debt x Interest Rate
 Annual Tax Shield= Debt x Interest Rate x Tax Rate
 Capitalisation Value (Perpetual Firm) = (Debt × Interest Rate x Tax Rate) ÷ Cost of Debt
* the term <math>T_C D</math> assumes debt is perpetual

This means that there are advantages for firms to be levered, since corporations can deduct interest payments. Therefore leverage lowers [[tax]] payments. [[Dividend]] payments are non-deductible.