a. What is the relative tax advantage of corporate debt if the corporate tax rate is T = 0.22, the personal tax rate on interest is TPD = 0.37, but all equity income is received as capital gains and escapes tax entirely (TPE = 0 )? b. How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 10%? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. a. Relative tax advantage b. Relative tax advantage

a. What is the relative tax advantage of corporate debt if the corporate tax rate is T = 0.22, the personal tax rate on interest is TPD = 0.37, but all equity income is received as capital gains and escapes tax entirely (TPE = 0 )? b. How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 10%? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. a. Relative tax advantage b. Relative tax advantage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 2P

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