Given the Following Information, Leverage Will Add How Much Value

question 22

Multiple Choice

Given the following information, leverage will add how much value to the unlevered firm per pound of debt?
Corporate tax rate: 34%
Personal tax rate on income from bonds: 20%
Personal tax rate on income from equities: 0%

• A)£0.175
• B)£0.472
• C)£0.528
• D)£0.825
• E)None of the above.

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Definitions:

Receiver

An external administrator appointed by a court or secured creditor to collect and sell enough of the charged assets to repay the debt owed to the secured creditor, payout the money collected in the order required by the Corporations Act, and report to ASIC any offences or other irregular matters they discover in performing their duties.

Special Bank Account

An account designed for a specific purpose, often subject to certain conditions or restrictions different from regular accounts.

Circulating Security Interests

A security interest in movable assets that change in quantity or value, allowing the debtor to buy, sell, or exchange the collateral without changing the secured status.

Administrator

An independent and suitably qualified person appointed to take full control of a company in an attempt to save either the company or the company’s business.