Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 17, Problem 4MC
Suppose investors are subject to the following tax rates: Td = 30% and Ts = 12%.
- (1) According to the Miller model, what is the gain from leverage?
- (2) How does this gain compare with the gain in the MM model with corporate taxes?
- (3) What does the Miller model imply about the effect of corporate debt on the value of the firm; that is, how do personal taxes affect the situation?
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Students have asked these similar questions
Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?
Corporate tax rate: 34%
Personal tax rate on income from bonds: 40%
Personal tax rate on income from stocks: 30%I know the answer is 0.138 dollars, but following your method the answer is 0.23 dollars. Are you sure this is correct?
Given the following information, how much value will leverage will add to, or subtract from, the firm if the firm were to add one additional pound of debt?
Corporate tax = 15%
Personal tax on debt = 30%
Personal tax on equity = 10%
Select one:
-0.09
0.00
0.30
0.55
None of the above
Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 35%Personal tax rate on income from bonds: 25%Personal tax rate on income from stocks: 30%
A.
$-0.625
B.
$0.287
C.
$0.393
D.
$0.635
E.
None of these
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