Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 15, Problem 2Q
How would each of the following changes tend to affect aggregate payout ratios (that is, the average for all corporations), other things held constant? Explain your answers.
- a. An increase in the personal income tax rate
- b. A liberalization of
depreciation for federal income tax purposes–that is, faster tax write-offs - c. A rise in interest rates
- d. An increase in corporate profits
- e. A decline in investment opportunities
- f. Permission for corporations to deduct dividends for tax purposes as they now do interest charges
- g. A change in the Tax Code so that both realized and unrealized
capital gains in any year were taxed at the same rate as dividends
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How would each of the following changes tend to affect aggregate (i.e., the average for allcorporations) payout ratios, 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-offsc. An increase in interest ratesd. An increase in corporate profitse. A decline in investment opportunitiesf. Permission for corporations to deduct dividends for tax purposes as they now deductinterest expenseg. A change in the Tax Code so that realized and unrealized long-term capital gains inany year are taxed at the same rate as ordinary income
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
Which of the following is CORRECT?
Select one:
a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.
b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation.
c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM.
d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC.
e. All of the above are correct.
Which of the following is CORRECT?
Select one:
a. If the NPV of a project is negative, the IRR for the project must also be negative.
b. A project's MIRR can never exceed its IRR.
c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV.
d. If Project 1's IRR exceeds Project 2's IRR, then 1 must…
Chapter 15 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 15 - Define each of the following terms: a. Optimal...Ch. 15 - How would each of the following changes tend to...Ch. 15 - What is the difference between a stock dividend...Ch. 15 - One position expressed in the financial literature...Ch. 15 - Indicate whether the following statements are true...Ch. 15 - Prob. 1PCh. 15 - Prob. 2PCh. 15 - Dividend Payout
The Wei Corporation expects next...Ch. 15 - Prob. 4PCh. 15 - Prob. 5P
Ch. 15 - Prob. 6PCh. 15 - Stock Split
Suppose you own 2,000 common shares of...Ch. 15 - Stock Split Fauver Enterprises declared a 3-for-1...Ch. 15 - Residual Distribution Policy Harris Company must...Ch. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 12PCh. 15 - Integrated Waveguide Technologies (IWT) is a...Ch. 15 - Prob. 2MCCh. 15 - Assume that IWT has completed its IPO and has a...Ch. 15 - Prob. 4MCCh. 15 - Prob. 5MCCh. 15 - Suppose IWT has decided to distribute $50 million,...Ch. 15 - Prob. 7MCCh. 15 - Prob. 8MCCh. 15 - Prob. 9MC
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- you have developed the following pro forma income statement for your? corporation: it represents the most recent? year’s operations, which ended yesterday. a.if sales should increase by 25 ?percent, by what percent would earnings before interest and taxes and net income? increase? b.if sales should decrease by 25 ?percent, by what percent would earnings before interest and taxes and net income? decrease? q c.if the firm were to reduce its reliance on debt financing such that interest expense were cut in? half, how would this affect your answers to parts a and b?? sales $ 45,750,000 variable costs -22,800,000 revenue before fixed costs $ 22,950,000 fixed costs -9,200,000 ebit $ 13,750,000 interest expense -1,350,000 earnings before taxes $ 12,400,000 taxes (50%) -6,200,000 net income $ 6,200,000arrow_forwardHow would an increase in corporate taxes tend to affect an average firm’s capitalstructure? What about an increase in the personal tax rate?arrow_forwardAn increase in the corporate tax rate for company X will generally Increase X's cost of equity capital Increase X's cost of debt capital Increase X's weighted average cost of capital Reduce X's cost of debt capitalarrow_forward
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