Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 14, Problem 4Q
Summary Introduction
To identify: The effect of change in personal tax rate on the company’s capital structure.
Introduction:
Capital Structure:
Capital structure refers to the securities or debt included in the total capital of the firm. Adequate capital structure is required for the optimum utilization of funds.
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If Congress increased the personal tax rate on interest, dividends, and capital gains butsimultaneously reduced the rate on corporate income, what effect would this have on theaverage company’s capital structure?
How would each of the following changes tend to affect aggregate payoutratios (that is, the average for all corporations), other things held constant?Explain your answers.a. An increase in the personal income tax rateb. A liberalization of depreciation for federal income tax purposes—that is,faster tax write-offs
How would an increase in corporate taxes tend to affect an average firm’s capitalstructure? What about an increase in the personal tax rate?
Chapter 14 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 14 - Changes in sales cause changes in profits. Would...Ch. 14 - Would each of the following increase, decrease, or...Ch. 14 - Discuss the following statement: All else equal,...Ch. 14 - Prob. 4QCh. 14 - Prob. 5QCh. 14 - Why do public utilities generally use different...Ch. 14 - Why is EBIT generally considered independent of...Ch. 14 - Is the dept level that maximizes a firms expected...Ch. 14 - If a firm goes from zero dept to successively...Ch. 14 - Prob. 10Q
Ch. 14 - A firm is about to double its assets to serve its...Ch. 14 - BREAK-EVEN ANALYSIS A company's fixed operating...Ch. 14 - OPTIMAL CAPITAL STRUCTURE Terrell Trucking Company...Ch. 14 - Prob. 3PCh. 14 - UNLEVERED BETA Hartman Motor has. 18 million in...Ch. 14 - FINANCIAL LEVERAGE EFFECTS Firms HL and LL are...Ch. 14 - Prob. 6PCh. 14 - Prob. 7PCh. 14 - HAMADA EQUATION Situational Software Co. (SSC) is...Ch. 14 - RECAPITALIZATION Tartan industries currently has...Ch. 14 - BREAKEVEN AND OPERATING LEVERAGE a. Given the...Ch. 14 - RECAPITALIZATION Currently, Forever Flowers Inc....Ch. 14 - BREAKEVEN AND LEVERAGE Wingler Communications...Ch. 14 - FINANCING ALTERNATIVES The Severn Company plans to...Ch. 14 - WACC AND OPTIMAL CAPITAL STRUCTURE Elliott...Ch. 14 - Prob. 1TCLCh. 14 - Exploring the Capital Structures for Four...
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- Discuss the reasons why individuals generally prefer capital gains over ordinary gains. Explain why corporate taxpayers might prefer capital gains over ordinary gains.arrow_forwardIs the corporate tax schedule progressive? Why or why not?arrow_forwardTwo considerations that cause a corporation's cost of capital to be different than its investors' required returns are A. corporate taxes and the earned income tax credit. B. individual taxes and dividends. C. corporate taxes and flotation costs. D. individual taxes and corporate taxes.arrow_forward
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