You need to calculate the gains from using $1,000,000 of additional leverage on the average company in the U.S.economy.You are told that the average investor's personal tax rate on income from stock is 15% and that investors can generally avoid personal taxes on income from debt.You are also told that the average corporation is subject to the 35% marginal corporate tax rate.What is the benefit to firm value for this additional debt load?

Question

Quizplus · Accepted Answer

G_L = [ 1- {(1-T_c)(1-T_ps)/(1-T_pd)}] ´ D = [ 1- {(1-.35)(1-.15)/(1-0)}] ´ 1,000,000 = 447,500

You Need to Calculate the Gains from Using $1,000,000 of Additional