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Page 1 Tax rate 0% Debt in the capital structure 0% 10% 20% 30% 40% 50% EBIT 120,000 120,000 120,000 120,000 120,000 120,000 Interest - 4,125 8,750 14,625 22,000 31,250 Profit before taxes 120,000 115,875 111,250 105,375 98,000 88,750 Taxes - - - - - - Profit after taxes 120,000 115,875 111,250 105,375 98,000 88,750 Dividends 120,000 115,875 111,250 105,375 98,000 88,750 Total payments to security holders 120,000 120,000 120,000 120,000 120,000 120,000 Required return on debt 8.00% 8.25% 8.75% 9.75% 11.00% 12.50% Required return on equity 12.00% 12.50% 13.00% 13.50% 14.50% 16.00% Market value of debt - 50,000 100,000 150,000 200,000 250,000 Market value of equity 1,000,000 927,000 855,769 780,556 675,862 554,688 Market value of the firm 1,000,000 977,000 955,769 930,556 875,862 804,688 Book value of debt - 50,000 100,000 150,000 200,000 250,000 Book value of equity 500,000 450,000 400,000 350,000 300,000 250,000 Book value of the firm 500,000 500,000 500,000 500,000 500,000 500,000 Return on total capital
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capstruc - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18...

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