Problemeccles inc a zero growth firm has an expected ebit, Ask an Expert

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Problem:

Eccles Inc., a zero growth firm, has an expected EBIT of $120,000 and a corporate tax rate of 35%. Eccles uses $500,000 of 12% debt, and the cost of equity to an unleveled firm in the same risk class is 16%.

Required:

Question 1: What is the value of the firm according to the MM with corporate taxes?

Question 2: What is the firm's cost of equity?

Question 3: Assume that the firm's gain from leverage according to the Miller model is $130,000. If the effective personal taxe rate on stock income is Ts = 25%, what is the implied personal tax rate on debt income?

Note: Please show basic calculation

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91163251

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