What Is the Relative Tax Advantage of Debt? Assume That

question 27

Multiple Choice

What is the relative tax advantage of debt? Assume that personal and corporate taxes are given by: T_C = (corporate tax rate) = 35%; Tp_E = personal tax rate on equity income = 30%; and Tp = personal tax rate on interest income = 20%.

• A)1.76
• B)1.16
• C)1.35
• D)0.86

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