Evaluate the break-even corporate tax rate

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Reference no: EM1312212

Calculation of Capital Budgeting.

A company has the following income statement. What is its net operating profit after taxes (NOPAT)?

Sales	$1,000
Costs	600
Depreciation	250
BIT	$150
Interest expense	50
EBT	$100
Taxes (40%)	40
Net income	$60

a. $ 60
b. $ 80
c. $ 90
d. $100
e. $120

Mantle Corporation is considering two equally risky investments:
1) A $5,000 investment in preferred stock which yields 7 percent.
2) A$5,000 investment in a corporate bond which yields 10 percent.

What is the break-even corporate tax rate which makes the company indifferent between the two investments?

a. 33.17%
b. 34.00%
c. 37.97%
d. 42.15%
e. 42.86%

Reference no: EM1312212

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