PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 16, Problem 10PS
Payout and taxes* Which of the following U.S. investors have tax reasons to prefer companies that pay out cash by repurchases instead of cash dividends? Which should not care?
- a. A pension fund.
- b. An individual investor in the top income-tax bracket.
- c. A corporation.
- d. An endowment for a charity or university.
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If Congress wants to stimulate the economy, explainhow it might alter each of the following: (a) personaland corporate tax rates, (b) depreciation expenseschedules, and (c) the differential between the taxrate on personal income and long-term capitalgains. How would these changes affect corporateprofitability and free cash flow? How would theyaffect investors’ choices regarding which securities to hold in their portfolios? Might any of theseactions affect the general level of interest rates?
How would an increase in corporate taxes tend to affect an average firm’s capitalstructure? What about an increase in the personal tax rate?
Assume that the tax on dividends and the tax on capital gains is the same. All else equal, what would a prudent investor prefer?
A.
More information is needed.
B.
The prudent investor would prefer dividends—a dollar today is always worth more than a dollar to be received in the future.
C.
The prudent investor would be indifferent between receiving dividends or capital gains.
D.
The prudent investor would prefer capital gains—the capital gain tax liability can be deferred until gains are realized.
Chapter 16 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 16 - Prob. 1PSCh. 16 - Company dividend policy Here are several facts...Ch. 16 - Dividend payments Seashore Salt Co. has surplus...Ch. 16 - Repurchases Look again at Problem 3. Assume...Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Dividends and stock price Go back to the first...Ch. 16 - Prob. 7PSCh. 16 - Repurchases and the DCF model Surf Turf Hotels is...Ch. 16 - Prob. 9PSCh. 16 - Payout and taxes Which of the following U.S....
Ch. 16 - Prob. 11PSCh. 16 - Prob. 13PSCh. 16 - Information content of dividends What is meant by...Ch. 16 - Information content of dividends Does the good...Ch. 16 - Prob. 16PSCh. 16 - Repurchases and the DCF model Little Oil has 1...Ch. 16 - Dividends and value We stated in Section 16-3 that...Ch. 16 - Prob. 19PSCh. 16 - Repurchases and the DCF model House of Haddock has...Ch. 16 - Prob. 21PSCh. 16 - Prob. 22PSCh. 16 - Repurchases and the DCF model Hors dAge...Ch. 16 - Repurchases An article on stock repurchase in the...Ch. 16 - Prob. 25PSCh. 16 - Information content of dividends Generous dividend...Ch. 16 - Repurchases and EPS Many companies use stock...Ch. 16 - Prob. 28PSCh. 16 - Dividend policy and the dividend discount model...Ch. 16 - Prob. 30PS
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