Consider a situation in which the corporate tax rate is 40%, the interest income tax rate is
Fantastic news! We've Found the answer you've been seeking!
Question:
Consider a situation in which the corporate tax rate is 40%, the interest income tax rate is 40% and capital gains and dividend tax rates are both 20%. The unlevered cost of capital of the firm is 8% and its cost of debt is 5%. The firm's EBIT can take two values: 500 with probability 50%, and 40,000 with probability 50%. After this period the firm dies (only consider one period). The debt-to-value ratio that maximizes firm value is closest to:
23%
105%
100%
53%
Posted Date: