Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
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.
- 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. An increase 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 deduct interest expense
- 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.
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.
An increase in the personal income tax rate affects directly to shareholders mostly in case if the company pays the higher dividend...
b.
To determine: The effect of following changes on the payout ratio.
c.
To determine: The effect of following changes on the payout ratio.
d.
To determine: The effect of following changes on the payout ratio.
e.
To determine: The effect of following changes on the payout ratio.
f.
To determine: The effect of following changes on the payout ratio.
g.
To determine: The effect of following changes on the payout ratio.
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