You Need to Calculate the Gains from Using $1,000,000 of Additional

question 32

Multiple Choice

You need to calculate the gains from using $1,000,000 of additional leverage on the average company in the U.S.economy.You are told that the average investor's personal tax rate on income from stock is 15% and that investors can generally avoid personal taxes on income from debt.You are also told that the average corporation is subject to the 35% marginal corporate tax rate.What is the benefit to firm value for this additional debt load?

• A) $650,000
• B) $447,500
• C) $350,000
• D) none of the above

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Definitions:

U.S. Population

Refers to the total number of people living in the United States of America.

Contingency Management

A behavioral intervention strategy that modifies behavior by changing the consequences of that behavior, often through reward or punishment.

Alcohol

A psychoactive substance, typically found in drinks like beer, wine, and spirits, that can alter mood and behavior when consumed.

Antabuse

A prescription medication used to help people who have a drinking problem control their desire to drink alcohol. The generic name is disulfiram.