When we take taxes into account, MM's 1958 Proposition could no longer hold, and the capital structure can be essential because of:. a. higher operating income from lower dividends.
b. interest tax shield.
c. higher tax rates on retained earnings than on debt.
d. lower tax rates on dividends than on debt.

When we take taxes into account, MM's 1958 Proposition could no longer hold, and the capital structure can be essential because of:

Explanation:

The propositions of Miller and Modigliani are that a firm's market value does not depend on the capital structure and the cost of equity increases as the percentage of debt increases.

But, when taxes are accounted for, MM's Propositions are no longer tenable, because debts provide interest tax shield and the market value of a firm is impacted by debts' interests and the tax shield that interests provide.  Tax burden is reduced with interests on debts.  This increases the Earnings per share, an important element in the valuation of a firm's market value.

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