Consider a project lasting one year only. The initial outlay is $1,000 and the expected inflow is $1,240. The opportunity cost of capital is r = 0.24. The borrowing rate is rD = 0.10, and the tax shield per dollar of interest is Tc = 0.21.
b. How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 12%? (Do not round intermediate calculations. Round your answer to 4 decimal places.)