In Australia, the tax on dividends and capital gains is15%, the corporate tax rate is 30% and the individual tax on interestpayments is 50%.

1.

A) Considering personal and corporate taxes, does debt has a nettax advantage in Australia? Assuming that other than tax thereare no advantages or disadvantages of debt, what is the optimalleverage ratio (0% to 100%) for companies in Australia?

B)Suppose the new government plans to increase the tax on divi-dends from 15% to 30%? Should the amount of leverage used byAustralian companies increase or decrease? What is the optimalleverage ratio under new tax regime?

Answer rating: 100% (QA)

A Under the current tax regime 1 030 interest expense 050 interest income Simplifying the equation 0... View the full answer