An Investment has the following characteristics: ATIRRP: After-tax IRR on total investment in the property: 9.0%...
An Investment has the following characteristics:
ATIRRP: After-tax IRR on total investment in the property: 9.0%
BTIRRE: Before-tax IRR on equity invested: 17%
BTIRRP: Before-tax IRR on total investment in the property: 12%
t: Marginal tax rate: 0.40
What would be the break-even interest rate (BEIR), at which the use of leverage is neither favorable nor unfavorable?
15.0%
20.0%
22.5%
28.3%
None of the above
Homework Answers
What would be the break-even interest rate (BEIR), at which the use of leverage is neither favorable nor unfavorable
The break-even interest rate (BEIR)= After tax IRR on total investment / (1- Tax rate)
=9% / (1-0.40)
=9%/0.60
= 15%
Correct answer is option: 15%
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