What is the implied personal tax rate on debt income

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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%.

Question 1: 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?

Option a. 14.2%

Option b. 17.6%

Option c. 19.6%

Option d. 15.8%

Option e. 12.8%

Reference no: EM132495643

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