Consider an Economy in Which There Are Three Groups of Investors

question 34

Essay

Consider an economy in which there are three groups of investors and no others.
There are no personal taxes on income from stocks. An investment is available that pays a tax-free 4%. The corporate tax rate is 50%. Total corporate income before earnings and taxes (EBIT) is $224 million forever. What is the maximum debt-to-equity ratio for the economy as a whole?

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Definitions:

Catch Or Declare Rule

A rule in Java that requires a method to either catch an exception with a try-catch block or declare it in the method's throws clause.

Thrown Exception

An event that occurs during the execution of a program that disrupts the normal flow, which is then handled by try and catch blocks.

Try Block

Part of exception handling in many programming languages, where potentially errors-prone code is placed and monitored for exceptions.

Catch Block

Part of exception handling syntax, it is a section of code that is executed when an exception is thrown, allowing the program to respond or recover.