Consider an Economy in Which There Are Three Groups of Investors

question 28

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 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:

Copyright

A law that gives creators of original works exclusive rights to their use and distribution, usually for a limited time.

Utility

In economics, a measure of the satisfaction received from consuming goods and services.

Air Pollution

The presence of harmful or excessive quantities of substances, including gases, particles, and biological molecules, in the earth's atmosphere, which can lead to health problems and environmental damage.

Ethical Way

Conducting oneself or performing actions based on what is morally right and fair.