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A company is currently all equity, has a cost of equity of 9%, an EBIT of $1,500,000, and zero growth. The company has a corporate
A company is currently all equity, has a cost of equity of 9%, an EBIT of $1,500,000, and zero growth. The company has a corporate tax rate of 35% and investors are subject to a tax rate of 15% on earnings from equity investments and 35% on interest income. If the company issues $7 million in debt, what is the gain from leverage assuming the assumptions of the Modigliani and Miller models hold? $2,450,000 $7,000,000 $4,200,000 $1,050,000
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