Now suppose investors are subject to the following tax rates: TD = 30% and TS = 12%.

Question:

Now suppose investors are subject to the following tax rates:

TD = 30% and TS = 12%.

What is the gain from leverage according to the miller model?

MINI CASE

David Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies average about 30 percent debt, and Mr. Lyons wonders why they use so much more debt, and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant:

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To begin note that Millers Proposition I is stated as follows Here the bracketed term ...View the full answer

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Financial management theory and practice

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12th Edition

Authors: Eugene F. Brigham and Michael C. Ehrhardt

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Question Posted: Mar 24, 2010 04:08 AM

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Now suppose investors are subject to the following tax rates: TD = 30% and TS = 12%.

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To begin note that Millers Proposition I is stated as follows Here the bracketed term ...View the full answer

Financial management theory and practice

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