What is the relative tax advantage of corporate debt if the corporate tax rate Tc = 21%, the personal tax rate Tp = 37%, but all equity income is received as capital gains and escapes tax entirely (TpE = 0%)? How does the relative tax advantage change if the company decides to pau out all equity income as cash dividends that are taxed at 20%?

What is the relative tax advantage of corporate debt if the corporate tax rate Tc = 21%, the personal tax rate Tp = 37%, but all equity income is received as capital gains and escapes tax entirely (TpE = 0%)? How does the relative tax advantage change if the company decides to pau out all equity income as cash dividends that are taxed at 20%?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter15: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 2Q: How would each of the following changes tend to affect aggregate payout ratios (that is, the average...

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