While computing the cost of equity using the formula , rs=D1P0+g, we do not make any adjustment to express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
While computing the cost of equity using the formula , rs=D1P0+g, we do not make any adjustment to express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 5MC: What happens to ROE for Firm U and Firm L if EBIT falls to $1,600? What happens if EBIT falls to...
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