Ordinary income is taxed at 40%. Capital gains are taxed at 10%. Find the combined pre-tax yield on capital gains and dividends. Then find the combined after-tax yield (ordinary dividends are taxed at ordinary income rate!). Find the tax advantage of debt in B14.

Create a data table that shows the tax advantage of debt as it varies with both T_C (0-20% by 1%) and T_D (30-50% by 1%). Try to plot this data table using a 3-D graph (e.g., a 3-D surface).

What does the tax advantage of debt answer mean for the firm?

Does the tax advantage answer fit your expectations based upon the tax rates you observe? Why or Why not?

FILL IN THE TAX EFFECTS
Corporate tax rate, TC	36%
Anticipated tax		Tax rate
Dividend yield	2.50%	40%
Capital gains yield	5.00%	10%
Before tax yield	??
Net after-tax yield	??
Personal tax rate on equity income, TE	??
Personal tax rate on ordinary income, TD	40.00%
Tax advantage of debt over equity: (1-TD)-(1-TC)*(1-TE)	??