A firm needs to attract investment in order to buy land. The nominal interest rate on the firms debt is 4%. The portion of investment that is financed by debt is 30%, shareholders required nominal rate of return on equity is 8% and the inflation rate is 3%.

A) What is the minimum rate of return needed to gain funds from investors in order to finance buying the land?

For parts B) and C), consider a corporate tax system that features:

• Corporate Income Tax Rate: u= 0.27
• No Investment Tax Credit for buying land
• Nominal Interest payments on the firms debt is deductible, but opportunity cost of equity finance is not

B) What is the before-tax rate of return that will result in an after-tax hurdle rate of return needed by the firm's stakeholders? What is the Marginal Effective Tax Rate?

C) What is the impact of a reduction in statutory corporate tax rate on the Marginal Effective Tax Rate?