What Is the Relative Tax Advantage of Debt? Assume That

question 32

Multiple Choice

What is the relative tax advantage of debt? Assume that personal and corporate taxes are given by: T_C = (corporate tax rate) = 21 percent; T_pE = personal tax rate on equity income = 15 percent; and T_p = personal tax rate on interest income = 37 percent.

• A)0.94
• B)1.16
• C)1.35
• D)0.86

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Definitions:

Multiple Market Segments

The practice of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups with similar needs or characteristics.

Geographic Markets

Market segments defined by geographic areas where customers share similar needs and characteristics.

Increased Sales

An upward trend in the quantity of products or services sold, indicating growth in revenue for a business.

Business Firm

An organization engaged in commercial, industrial, or professional activities with the aim of generating profits.