Eccles Incorporated, a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 25%. 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 to the data for Eccles Incorporated. 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 T S = 20%, what is the implied personal tax rate on debt income?
Therefore, the implied tax rate on debt income is 19.6% Hence, the Correct answer is... View the full answer