The taxation effects on stock repurchase compared to dividend payments. Introduction: Stock repurchase is also termed as buyback of shares, where the company repurchases its own shares, which are outstanding. The extra cash can be used in paying the debts; the cash dividend is the distribution of company’s earnings to the shareholders.

Question

Want to see the full answer?

Answer 1

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17, Problem 10CRCT

Summary Introduction

To discuss: The taxation effects on stock repurchase compared to dividend payments.

Introduction:

Stock repurchase is also termed as buyback of shares, where the company repurchases its own shares, which are outstanding. The extra cash can be used in paying the debts; the cash dividend is the distribution of company’s earnings to the shareholders.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Suppose that Congress sets the top personal tax rate on interest and dividends at 35% and the top rate on realized capital gains at 15%. The corporate tax rate stays at 21%. Assume capital gains are half of equity income. Compute the difference between the total corporate plus personal taxes paid on debt and the total taxes on equity income if all capital gains are realized immediately. Compute the difference between the total corporate plus personal taxes paid on debt and the total taxes on equity income if all capital gains are deferred forever. Note: Do not round intermediate calculations. Round your answers to 4 decimal places.

For its current tax year, Ilex Corporation has ordinary income of $250,000, a short-term capital loss of $20,000 and a long-term capital gain of $60,000. Calculate Ilex Corporation's tax liability for 2020.$ Prior to 2018, the U.S. corporate tax rate structure had eight tax brackets with progressive marginal tax rates ranging from 15 percent to 39 percent. Starting in 2018, corporations are subject to a flat income tax rate. Corporations are limited in the way that capital losses may be deducted. However, losses may be carried back and carried forward.

You are told that one corporation just issued $100 million of preferred stock and anotherpurchased $100 million of preferred stock as an investment. You are also told that one firmhas an effective tax rate of 20%, whereas the other is in the 35% tax bracket. Which firm ismore likely to have bought the preferred? Explain.

Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17, Problem 10CRCT

Summary Introduction

To discuss: The taxation effects on stock repurchase compared to dividend payments.

Introduction:

Stock repurchase is also termed as buyback of shares, where the company repurchases its own shares, which are outstanding. The extra cash can be used in paying the debts; the cash dividend is the distribution of company’s earnings to the shareholders.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17, Problem 10CRCT

Summary Introduction

To discuss: The taxation effects on stock repurchase compared to dividend payments.

Introduction:

Stock repurchase is also termed as buyback of shares, where the company repurchases its own shares, which are outstanding. The extra cash can be used in paying the debts; the cash dividend is the distribution of company’s earnings to the shareholders.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17, Problem 10CRCT

Summary Introduction