Question

NeverEver Corporation is choosing between a taxable bond at the yield of 7% and a municipal bond at the yield of 5.75%. Calculate the NeverEver Corporation's break-even tax rate. g

Answer 1

18%

Step-by-step explanation:

Calculation to determine the NeverEver Corporation's break-even tax rate.

Using this formula

Break-even tax rate=1- ( Municipal / Corporate )

Let plug in the formula

Break-even tax rate=1- (0.0575-0.07)=0.821429

Break-even tax rate=1-0.821429=0.178571

Break-even tax rate=0.178571 *100

Break-even tax rate= 17.8%

Break-even tax rate=18% Approximatel

Therefore the NeverEver Corporation's break-even tax rate is 18%