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Assume that personal and corporate taxes are given by: TC = (corporate tax rate) = 30 percent; TPS= personal tax rate on equity income = 25 percent; and TPB = personal tax rate on interest income = 40 percent. By how much will the value of the firm change if it issues $1 million in debt and uses the proceeds to repurchase equity? а. 0.875 b. 0.125 С. 0.30 d. 1.00 е. None of the above

Assume that personal and corporate taxes are given by: TC = (corporate tax rate) = 30 percent; TPS= personal tax rate on equity income = 25 percent; and TPB = personal tax rate on interest income = 40 percent. By how much will the value of the firm change if it issues $1 million in debt and uses the proceeds to repurchase equity? а. 0.875 b. 0.125 С. 0.30 d. 1.00 е. None of the above

Essentials Of Investments
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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Assume that personal and corporate taxes are given by: TC = (corporate tax rate) = 30 percent; TPS= personal tax rate on equity income = 25 percent; and TPB = personal tax rate on interest income = 40 percent. By how much will the value of the firm change if it issues $1 million in debt and uses the proceeds to repurchase equity? %3D %3D а. 0.875 b. 0.125 С. 0.30 d. 1.00 е. None of the above
Transcribed Image Text:Assume that personal and corporate taxes are given by: TC = (corporate tax rate) = 30 percent; TPS= personal tax rate on equity income = 25 percent; and TPB = personal tax rate on interest income = 40 percent. By how much will the value of the firm change if it issues $1 million in debt and uses the proceeds to repurchase equity? %3D %3D а. 0.875 b. 0.125 С. 0.30 d. 1.00 е. None of the above
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