1.The formula for net tax benefit of debt is [(1 - Tp) - (1 Tc)...

Transcribed Image Text:

1.The formula for net tax benefit of debt is [(1 - Tp) - (1 − Tc) * (1 − TË)] where Tp represents personal interest income tax rate, Tc is marginal corporate tax rate, and Te is personal equity tax rate. Calculate the net tax benefit of debt given the following: a. Sample mean of TE is 0.120 b. Tp is 0.246 in 1991 and 1992. c. Effective federal rate Te is 0.278 2. Assuming that tax benefits are symmetric, write down the net tax benefit of debt; that is, both interests of debt and dividends of equity are tax deductible. 3. Compute the net tax benefit in item 2 using the parameters in item 1. 1.The formula for net tax benefit of debt is [(1 - Tp) - (1 − Tc) * (1 − TË)] where Tp represents personal interest income tax rate, Tc is marginal corporate tax rate, and Te is personal equity tax rate. Calculate the net tax benefit of debt given the following: a. Sample mean of TE is 0.120 b. Tp is 0.246 in 1991 and 1992. c. Effective federal rate Te is 0.278 2. Assuming that tax benefits are symmetric, write down the net tax benefit of debt; that is, both interests of debt and dividends of equity are tax deductible. 3. Compute the net tax benefit in item 2 using the parameters in item 1.

Answer rating: 100% (QA)

To calculate the net tax benefit of debt using the given information we can plu... View the full answer