Use the table for the question(s)below.
Consider the following historical top federal tax rates in the United States:
Personal Tax Rates
-In 2000,assuming an average dividend payout ratio of 50%,the effective tax advantage for debt (t*)was closest to:

Question

Use the table for the question(s)below.
Consider the following historical top federal tax rates in the United States:
Personal Tax Rates 
-In 2000,assuming an average dividend payout ratio of 50%,the effective tax advantage for debt (t*)was closest to:

Quizplus · Accepted Answer

The effective tax advantage for debt (t*) is calculated as the corporate tax rate minus the product of the dividend payout ratio and the tax rate on dividends. Assuming a corporate tax rate of 40% and a dividend tax rate of 30%, t* = 40% - (50% * 30%) = 40% - 15% = 25%, which is closest to 24%.

Use the Table for the Question(s)below