Use the Information for the Question(s) Below

question 66

Multiple Choice

Use the information for the question(s) below.
Shepard Industries expects free cash flow of $10 million each year. Shepard's corporate tax rate is 35%, and its unlevered cost of equity is 10%. The firm also has outstanding debt of $40 million and it expects to maintain amount of debt permanently.
-Assume that the corporate tax rate is 40%,the personal tax rate on income from equity is 20% the personal rate on interest income is 36%.The effective tax advantage of a corporate issuing debt would be closest to:

• A) 10%
• B) 15%
• C) 25%
• D) 28%

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Definitions:

Costochondritis

Inflammation of the cartilage that connects a rib to the breastbone, causing chest pain that can mimic that of a heart attack.

Chest Pain

A common symptom that can be caused by a wide range of health conditions, from minor issues like indigestion to serious medical emergencies such as a heart attack.

Pushes

A term generally referring to the act of applying force to move something away from oneself or the act of promoting or encouraging a particular activity, idea, or direction.

Gluteal Areas

Regions of the body pertaining to the buttocks, where muscles and fat are concentrated.