An unlevered firm operates in perfect capital markets except that there are both corporate and personal taxes. The corporate tax rate is 25%, the personal tax rate on income from stock is 20%, and the personal tax rate on interest income from debt is 30%. If the firm borrows $10 million at 4% interest and uses the proceeds to retire stock, the value of the firm will ______ not change at all decrease by about $143,000 increase by about $143,000 increase by about 14.3%
An unlevered firm operates in perfect capital markets except that there are both corporate and personal taxes. The corporate tax rate is 25%, the personal tax rate on income from stock is 20%, and the personal tax rate on interest income from debt is 30%. If the firm borrows $10 million at 4% interest and uses the proceeds to retire stock, the value of the firm will ______ not change at all decrease by about $143,000 increase by about $143,000 increase by about 14.3%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Give typing answer with explanation and conclusion
![An unlevered firm operates in perfect capital markets except that there are both
corporate and personal taxes. The corporate tax rate is 25%, the personal tax rate on
income from stock is 20%, and the personal tax rate on interest income from debt is
30%. If the firm borrows $10 million at 4% interest and uses the proceeds to retire
stock, the value of the firm will
not change at all
decrease by about $143,000
increase by about $143,000
increase by about 14.3%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffd4de583-e4d3-492c-a5f4-de371541259a%2F16792e92-c15b-429d-b0ce-cb15f0e0caa3%2Fryhzkgil_processed.png&w=3840&q=75)
Transcribed Image Text:An unlevered firm operates in perfect capital markets except that there are both
corporate and personal taxes. The corporate tax rate is 25%, the personal tax rate on
income from stock is 20%, and the personal tax rate on interest income from debt is
30%. If the firm borrows $10 million at 4% interest and uses the proceeds to retire
stock, the value of the firm will
not change at all
decrease by about $143,000
increase by about $143,000
increase by about 14.3%
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