Calculate the value of leverage for Cruise Company and Kidman Company, whose eco
ID: 2452816 • Letter: C
Question
Calculate the value of leverage for Cruise Company and Kidman Company, whose economic balance sheets are shown. Assume the marginal corporate tax rate is 35%, the marginal tax rate on personal income derived from equity is 20%, and the marginal tax rate on personal interest deductions is 39.6%. Assume no costs to financial distress and no operating effects to leverage.
Cruise Company Condensed Economic Balance Sheet December 31, 2001
Assets $1,000,000 Debt $ 700,000
Equity $ 300,000
Total Debt and Equity $ 1,000,000
Kidman Company Condensed Economic Balance Sheet December 31, 2001
Assets $ 1,000,000 Debt $ 200,000
Equity 800,00
Total Debt and Equity $ 1,000,000
Cruise Company Condensed Economic Balance Sheet December 31, 2001
Assets $1,000,000 Debt $ 700,000
Equity $ 300,000
Total Debt and Equity $ 1,000,000
Explanation / Answer
Calculate the value of leverage for Cruise Company and Kidman Company, whose eco
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