Suppose savers either buy bonds or make deposits in savings accounts at banks. initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. now suppose there is an increase in the tax rate on interest income, from 20% to 25%. shift the appropriate curve on the graph to reflect this change.

this change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to fall/rise and the level of investment spending to decrease/increase.

an investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. suppose the government implements a new investment tax credit.

shift the appropriate curve on the graph to reflect this change.

the implementation of the new tax credit causes the interest rate to fall/rise and the level of investment to fall/rise .

initially, the government's budget is balanced, then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes.

this change in spending causes the government to run a budget deficit/surplus, which increases/decreases national saving.

shift the appropriate curve on the graph to reflect this change.

this causes the interest rate to fall/rise , crowding out/increasing the level of investment spending.

Calculate the cost of each capital component—in other words, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs). use both the capm method and the dividend growth approach to find the cost of equity.calculate the cost of new stock using the dividend growth approach.what is the cost of new common stock based on the capm? (hint: find the difference between re and rs as determined by the dividend growth approach and then add that difference to the capm value for rs.)assuming that gao will not issue new equity and will continue to use the same target capital structure, what is the company’s wacc? e. suppose gao is evaluating three projects with the following characteristics.each project has a cost of $1 million. they will all be financed using the target mix of long-term debt, preferred stock, and common equity. the cost of the common equity for each project should be based on the beta estimated for the project. all equity will come from reinvested earnings.equity invested in project a would have a beta of 0.5 and an expected return of 9.0%.equity invested in project b would have a beta of 1.0 and an expected return of 10.0%.equity invested in project c would have a beta of 2.0 and an expected return of 11.0%.analyze the company’s situation, and explain why each project should be accepted or rejected g