PMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to be $13 million, $20 or $27 million. Its corporate tax rate is 38% and investors pay a 15% tax rate on income from equity and a 45% tax rate on interest income.
a. What is the effective tax advantage of debt if PMF has interest expenses of $10 million this coming year?
If PMF has interest expenses of $10 million this coming year, the effective tax advantage is enter your response here%.
(Round to one decimal place.)
