Assume that the legislators are looking at enacting a new tax law, aimed at getting...
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Assume that the legislators are looking at enacting a new tax law, aimed at getting companies to pay out more of their earnings as dividends. As part of this law, companies will pay two different tax rates on net income: a 35% tax rate on retained earnings and a 15% tax rate on earnings paid out as dividends. What effect will this have on corporate financing behavior? None. Debt ratio should remain unchanged Debt ratios should go up over time, especially for mature firms with few growth opportunities Debt ratios should go down over time, especially for young, high growth firms O Debt ratios should go down over time, especially for mature firms with few growth opportunities Debt ratios should go up over time, especially for young, high growth firms Question 2 0.5 pts Asker Inc. is an all-equity funded firm that is considering borrowing $ 1 billion at a market interest rate of 4%. If the loan is a balloon payment loan for 12 years (only interest paid for the next 12 years and the principal at the end of year 12) and Asker faces a 40% marginal tax rate, what is the value of the tax benefits that Asker will get just from the 12-year loan? $24 million O $176.64 million $150.16 million $275,34 million $264.96 million
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