Value of all equity in a Firm in No Tax World Modigliani- Miller Model

Nature of Company	Formula	Remarks/ Criticism
Un-geared Company	Vu = EBIT/Ro & Re= Ro Because it is no tax world and un geared company.	For the calculation of Value of business for share holders, we should use the Re instead of Ro (wacoc) because Ro is used for the calculation of Capital Employed. Ref: Theory
Geared Company	Vg = EBIT/ Ro & WACOC = Ro = (D/(D+E))(Rd) + (E/(E+D)) (Re) WACOC = Fixed & Vg = E + D = Dividend/Re + Interest/Rd.	There is a conceptual mistake in the valuation of a geared company while using WACOC; this is value of capital employed not value of business for share holders. Ref: Theory
Preposition # 1	Vu=Vg	If we assume as equity investment is fixed and capital employed is increasing with the increase in gearing than this formula will be wrong even for calculation of Capital employed. As our objective is to calculate the value of Business for shareholders so we should use correct formula. Ref: Theory
Preposition # 2 No Tax World	Re = Ro + (Ro-Rd) (D/E) Ro = WACOC = Fixed	This show that Re will increase as company will be more geared and equity will be more risky. This relation is accurate in no tax world and we can calculate the actual Re if we know Ro and vice versa. And WACOC is fixed at all levels of Gearing in no tax world.
Preposition # 2 (Relation of Re & Ro)	Re = Ro + (Ro-Rd)(1-Rt) (D/E) WACOC = Decreasing with increase in gearing due to tax saving. Ro = (D/C*(1-Rt)*Rd) + (E/C*Re)	Formula to calculate Re is not correct. WACOC is FIXED not decreasing as claimed by MM model. WACOC formula is correct but reverse calculation to calculate Re is not correct.
We will consider the same illustration discussed earlier and will see the actual figures and calculated figures for WACOC and Re.
Preposition # 2	Vg = E + D & E=Dividend/Re D=Interest/Rd Or E = Vg- D	This formula actually showing that Vg is capital employed into a company. Ref: Theory
Un-Geared Company	Vu = EBIT(1-Rt)/ Ro & Re= Ro	We should use the Re instead of Ro (wacoc) and correct formula should be Vu = EBIT(1-Tc)/Re Or we can interpret this as follows: Vu = (EBIT/Re)- (Tax/Re) Ref: Theory
Geared Company	Vg = E + D Vg = (EBIT-Interest)(1-Rt)/Re + interest/Rd	Factor (EBIT-Interest)(1-Rt)/Re very good factor which can be represented by the following formula: Value of EBIT = EBIT/Re Less: Value of Interest=Interest/Re Value of Tax= Tax/Re If we are calculating net value of business for share holders we should deduct the debt instead of adding it. Ref: Theory
Geared Company	Vg = Vu + PV Of tax shield or Vg = EBIT (1 - Tc)/Re + Interest*Tc/Rd Or Vg = EBIT (1 - Tc)/Re+ D*Tc	We can interpret & represent the formula as follows: Value of EBIT = EBIT/Re Less: Value of Tax= Tax/Re Add: Tax Shield In above details we can see that we already deducted the total actual value of tax from the value of EBIT and there is no need to add further saving of tax shield involved. Ref: Theory