Suppose the corporate tax rate is 38%, and investors pay a tax rate of 25% on income from dividends or capital gains and a tax rate of 35.5% on interest income. Your firm decides to add debt so it will pay an additional $15 million in interest each year. It will pay this interest expense by cutting its dividend. By how much will the firm need to cut its dividend each year to pay this interest expense?
Suppose the corporate tax rate is 38%, and investors pay a tax rate of 25% on income from dividends or capital gains and a tax rate of 35.5% on interest income. Your firm decides to add debt so it will pay an additional $15 million in interest each year. It will pay this interest expense by cutting its dividend. By how much will the firm need to cut its dividend each year to pay this interest expense?
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 3P
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Suppose the corporate tax rate is 38%, and investors pay a tax rate of 25% on income from dividends or
By how much will the firm need to cut its dividend each year to pay this interest expense?
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