Assume That the Firm's Gain from Leverage According to the Miller

question 40

Multiple Choice

Assume that the firm's gain from leverage according to the Miller model is $126,667.If the effective personal tax rate on stock income is T_S = 20%,what is the implied personal tax rate on debt income?

• A)18.2%
• B)20.2%
• C)22.5%
• D)25.0%

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Definitions:

Preferred Dividends

Preferred Dividends are payments made to preferred shareholders, typically fixed and paid out before any dividends are distributed to common shareholders.

Par Value

The nominal or face value of a share of stock or a bond as specified by the issuing company.

Net Income

The ultimate earnings a company reports after all deductions, including taxes and expenses, from total income.

Average Common Stockholders' Equity

The average equity held by common shareholders, calculated typically over a year, representing the company's assets minus its liabilities attributable to common shareholders.