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Estimate the tax benefit relative to equity

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Question: Assume that personal investors pay a 40% tax rate on interest income and only a 20% tax rate on equity income. If the corporate tax rate is 30%, estimate whether debt has a tax benefit, relative to equity. If a firm with no debt and $ 100 million in market value borrows money in this world, estimate what the value of the firm will be if the firm borrows $ 50 million.

Reference no: EM131690010

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