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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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How would each of the following changes tend to affect aggregate (i.e., the average for all corporations) payout ratios, other things held constant? Explain your answers.

  1. a. An increase in the personal income tax rate
  2. b. A liberalization of depreciation for federal income tax purposes–that is, faster lax write-offs
  3. c. An increase in interest rates
  4. d. An increase in corporate profits
  5. e. A decline in investment opportunities
  6. f. Permission for corporations to deduct dividends for tax purposes as they now deduct interest expense
  7. g. A change in the Tax Code so that realized and unrealized long-term capital gains in any year are taxed at the same rate as ordinary income

a.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

Introduction:

Payout Ratios:

The payout ratio is that portion of company’s earnings that paid as the dividend to the shareholders of the company. A high ratio means that the company distributed more earnings to the shareholders and low ratio means that the company uses its earnings to reinvest in the company.

Explanation

An increase in the personal income tax rate affects directly to shareholders mostly in case if the company pays the higher dividend...

b.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

c.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

d.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

e.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

f.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

g.

Summary Introduction

To determine: The effect of following changes on the payout ratio.

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