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Question
Eccles Inc.
Eccles Inc., a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%.
Refer tothe data for Eccles Inc.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 TS = 20%, what is the implied personal tax rate on debt income?a. 16.4%
b. 18.2%
c. 20.2%
d. 22.5%
e. 25.0%
Answer
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