The Lazy Corporation has marginal corporate tax rate of 21%. Assume that investors in Lazy pay a 15% tax rate on income from equity and a 21% tax rate on interest income. Lazy wants to issue risk-free perpetual debt to reduce its corporate tax burden by $1 million per year in each subsequent year. Assume the risk-free rate is 7%. What is the value added to the firm by this debt issuance.
The Lazy Corporation has marginal corporate tax rate of 21%. Assume that investors in Lazy pay a 15% tax rate on income from equity and a 21% tax rate on interest income. Lazy wants to issue risk-free perpetual debt to reduce its corporate tax burden by $1 million per year in each subsequent year. Assume the risk-free rate is 7%. What is the value added to the firm by this debt issuance.
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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K1.
The Lazy Corporation has marginal corporate tax rate of 21%. Assume that investors in
Lazy pay a 15% tax rate on income from equity and a 21% tax rate on interest income.
Lazy wants to issue risk-free perpetual debt to reduce its corporate tax burden by $1
million per year in each subsequent year. Assume the risk-free rate is 7%. What is the
value added to the firm by this debt issuance.
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