Given the Following Information, Leverage Will Add How Much Value

question 40

Multiple Choice

Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34%
Personal tax rate on income from bonds: 30%
Personal tax rate on income from stocks: 30%

• A) $0.246.
• B) $0.340.
• C) $0.006.
• D) -$0.050.

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Definitions:

P < .05

A statistical threshold indicating that the probability of observing the obtained result, or more extreme, if the null hypothesis is true, is less than 5%.

T-test

A statistical test used to compare the means of two groups or test a single mean against a known value.

Critical Value

A point on the scale of the test statistic beyond which we reject the null hypothesis; it defines the cutoff between significance and non-significance.

Null Hypothesis

A hypothesis that suggests there is no significant difference between specified populations, or no association among groups.