Assume that personal investors pay a 40 tax rate on
Assume that personal investors pay a 40% tax rate on interest income and only a 20% tax rate on equity income.
If the corporate tax rate is 30%, estimate whether debt has a tax benefit, relative to equity. If a firm with no debt and $100 million in market value borrows money in this world, estimate what the value of the firm will be if the firm borrows $50 million.
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