Assume that ro = .07 tax exempt return tc =.34 corporate tax rate tp =.30 tax rate

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Assume that ro = .07 tax exempt return tc =.34 corporate tax rate tp =.30 tax rate on ordinary income t, =.20 tax rate (an average) on stock equity income.

a. In equilibrium an investor must earn on taxable debt_________%

b. In equilibrium an investor must earn on stock ________%

c. In equilibrium a corporation must earn before corporate tax _______%

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The Capital Structure Decision

ISBN: 9781402072994

1st Edition

Authors: Harold Bierman

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