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%

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Definitions:

Loss Of Temper

Refers to the reduction of hardness and strength in metal after it has been exposed to excessive heat.

Crystallization

A process where a solid forms where the atoms or molecules are highly organized into a structure known as a crystal.

Frame Rail

A structural component of a vehicle's chassis, providing the main structural support.

Tempered Steel Frame

A strong, durable frame made of steel that has undergone a heat treatment process to improve its toughness and reduce brittleness.