[Verse 1] Before the tax man takes his slice Companies wondered what's the price Of debt versus equity to fund their dreams But something shifted in the schemes When interest payments steal away The government's expected pay [Chorus] Tax shield magic, interest saves Every dollar borrowed paves A pathway to protection sweet Making leverage quite the feat M and M with taxes say Debt creates value every day [Verse 2] Modigliani-Miller learned When corporate taxes get concerned The cost of capital starts to bend As leverage ratios ascend Each interest payment that you make Reduces what the taxman'll take [Chorus] Tax shield magic, interest saves Every dollar borrowed paves A pathway to protection sweet Making leverage quite the feat M and M with taxes say Debt creates value every day [Bridge] Multiply your tax rate by Interest expense reaching high That's your shield against the storm Value creation takes its form But remember moderation Too much debt brings devastation [Verse 3] The formula becomes quite clear Tax rate times the debt you bear Times the interest that you owe Shows the benefits that flow Optimal structure finds the spot Where benefits outweigh what's not [Chorus] Tax shield magic, interest saves Every dollar borrowed paves A pathway to protection sweet Making leverage quite the feat M and M with taxes say Debt creates value every day [Outro] Balance borrowed with what's owned Find the sweet spot you have grown Tax advantages fuel the climb Until the costs eat up your time
← Modigliani-Miller Without Taxes | Financial Distress and Trade-off Theory →