Eccles Inccorporated Eccles Incorporated, a Zero Growth Firm, Has an Expected EBIT

question 7

Multiple Choice

Eccles Inccorporated
Eccles Incorporated, a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 25%.Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%.
-Refer to the data for Eccles Incorporated.Assume that the firm's gain from leverage according to the Miller model is $126,667.If the effective personal tax rate on stock income is T_S = 20%, what is the implied personal tax rate on debt income?

• A) 12.8%
• B) 14.2%
• C) 15.8%
• D) 17.6%
• E) 19.6%

---

Definitions:

Intelligence Quotient

A measure of a person's relative cognitive abilities as compared to the general population, often represented by a numerical score.

Inappropriate Suppression

The unhealthy or maladaptive practice of forcibly inhibiting or restraining one's authentic thoughts or feelings.

Healthier Alternative

An option considered to be better for physical or mental well-being compared to another, potentially harmful one.

Emotional Balance

The ability to manage emotions effectively, maintaining equilibrium between positive and negative feelings.