$$\begin{array}{l}
\text { Consider an economy in which there are three groups of investors and no others. }\
\begin{array} { | l | l | l | }
\hline & \text { Marginal tax rate } & \text { Personal wealth } \
\hline \text { Group } & \text { on bonds } & \text { (£ millions) } \
\hline \text { Plumbers } & 60 \% & 2,500 \
\hline \text { Doctors } & 50 \% & 700 \
\hline \text { Lawyers } & 40 \% & 100 \
\hline
\end{array}
\end{array}$$ There are no personal taxes on income from stocks.An investment is available that pays a tax-free 4%.The tax rate is 50%.Total corporate income before earnings and taxes (EBIT) is £224 million forever.What is the maximum debt-to-equity ratio for the economy as a whole?

Question

$$\begin{array}{l}
\text { Consider an economy in which there are three groups of investors and no others. }\
\begin{array} { | l | l | l | } 
\hline & \text { Marginal tax rate } & \text { Personal wealth } \
\hline \text { Group } & \text { on bonds } & \text { (£ millions) } \
\hline \text { Plumbers } & 60 \% & 2,500 \
\hline \text { Doctors } & 50 \% & 700 \
\hline \text { Lawyers } & 40 \% & 100 \
\hline
\end{array}
\end{array}$$ There are no personal taxes on income from stocks.An investment is available that pays a tax-free 4%.The tax rate is 50%.Total corporate income before earnings and taxes (EBIT) is £224 million forever.What is the maximum debt-to-equity ratio for the economy as a whole?

Quizplus · Accepted Answer

The Answer of $$\begin{array}{l}
\text { Consider an economy in which there are three groups of investors and no others. }\
\begin{array} { | l | l | l | } 
\hline & \text { Marginal tax rate } & \text { Personal wealth } \
\hline \text { Group } & \text { on bonds } & \text { (£ millions) } \
\hline \text { Plumbers } & 60 \% & 2,500 \
\hline \text { Doctors } & 50 \% & 700 \
\hline \text { Lawyers } & 40 \% & 100 \
\hline
\end{array}
\end{array}$$ There are no personal taxes on income from stocks.An investment is available that pays a tax-free 4%.The tax rate is 50%.Total corporate income before earnings and taxes (EBIT) is £224 million forever.What is the maximum debt-to-equity ratio for the economy as a whole?

There Are No Personal Taxes on Income from Stocks