Contradiction in Chapter 30 something, structure, reading, opinion, capital

anshultongia

Hey all,

I was reading chapter 30 and something came across as a contradiction to me. However, I may be misunderstanding something and would appreciate a second opinion.

In chapter 30, section 2.1, the first proposition states that the value of the company is not affected by capital structure. Therefore a leverage company is equal to an unleveraged company (in terms of market value)

However, as I move on to 2.3, it says: "The value of the company increases with increasing levels of debt"
I understand that this is due to taxes but still, I don't understand how it affects the company value and which statement actually holds up in real life.

Thanks
Any thoughts would be appreciated.



Edited 1 time(s). Last edit at Saturday, January 22, 2011 at 10:16PM by canadiananalyst.