Assume that CVC Corp.'s marginal tax rate is 35%, investors in CVC pay a 15% tax rate on income from equity and a 35% tax rate on interest income. CVC is equally likely to have EBIT this coming year of $20 million, $25 million, or $30 million. What is the effective tax advantage of debt if CVC has interest expenses of $8 million this coming year?

A.

10%

B.

15%

C.

25%

D.

30%

BT is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year. You expect BTs stock price to be $25.00 at the end of two years. BTs equity cost of capital is 10%. Suppose you plan to hold BT stock for one year and sell it after receiving the first years dividend. The price you would expect to be able to sell a share of BT for in one year after the ex-dividend date is closest to:

(Note: The buyer is not entitled to the first years dividend i.e. $1.40)

A.

$26.50

B.

$27.90

C.

$25.50

D.

$24.10