Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 35% Personal tax rate on income from bonds: 25% Personal tax rate on income from stocks: 30% A. $-0.625 B. $0.287 C. $0.393 D. $0.635 E. None of these
Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 35% Personal tax rate on income from bonds: 25% Personal tax rate on income from stocks: 30% A. $-0.625 B. $0.287 C. $0.393 D. $0.635 E. None of these
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 2P
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Question
Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?
Corporate tax rate: 35%
Personal tax rate on income from bonds: 25%
Personal tax rate on income from stocks: 30%
A. |
$-0.625 |
B. |
$0.287 |
C. |
$0.393 |
D. |
$0.635 |
E. |
None of these |
Expert Solution
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The management likes to use leverage for making investment strategy if they are funding from various sources in a way that leads to high return on investment.
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Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?
Corporate tax rate: 34%
Personal tax rate on income from bonds: 40%
Personal tax rate on income from stocks: 30%
I know the answer is 0.138 dollars, but following your method the answer is 0.23 dollars. Are you sure this is correct?
I know the answer is 0.138 dollars, but following your method the answer is 0.23 dollars. Are you sure this is correct?
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