CORPORATE FINANCE >C<
11th Edition
ISBN: 9781308875637
Author: Ross
Publisher: MCG/CREATE
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Textbook Question
Chapter 19, Problem 10CQ
Investment and Dividends The Phew Charitable Trust pays no
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TRUE OR FALSE
Interest treated as capital expenditures is a deductible interest expense.
There is no tax benefit when the company chooses to source out funds by borrowings.
15% capital gains tax on net capital gains is imposed to investors whose sale of stocks which is not listed or traded in the LSE.
Which one of the following statements apply only to preference shareholders and not to equity shareholders
a.
Shareholders risk the loss of investment
b.
Shareholders bear the risk of no dividends in the event of losses
c.
Shareholders usually have the right to vote
d.
Dividends are usually given at a set amount in every financial year
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 19 Solutions
CORPORATE FINANCE >C<
Ch. 19 - Dividend Policy Irrelevance How is it possible...Ch. 19 - Stock Repurchases What is the impact of a stock...Ch. 19 - Dividend Policy It is sometimes suggested that...Ch. 19 - Dividend Chronology On Tuesday, December 8,...Ch. 19 - Prob. 5CQCh. 19 - Prob. 6CQCh. 19 - Dividends and Stock Price Last month, Central...Ch. 19 - Prob. 8CQCh. 19 - Dividend Policy For initial public offerings of...Ch. 19 - Investment and Dividends The Phew Charitable Trust...
Ch. 19 - Use the following information to answer the next...Ch. 19 - Stock Repurchases How do you think this tax law...Ch. 19 - Dividends and Stock Value The growing perpetuity...Ch. 19 - Bird-in-the-Hand Argument The bird-in-the-hand...Ch. 19 - Dividends and Income Preference The desire for...Ch. 19 - Dividends and Clientele Cap Henderson owns Neotech...Ch. 19 - Prob. 17CQCh. 19 - Prob. 18CQCh. 19 - Prob. 19CQCh. 19 - Prob. 20CQCh. 19 - Prob. 1QPCh. 19 - Stock Dividends The owners equity accounts for...Ch. 19 - Prob. 3QPCh. 19 - Stock Splits and Stock Dividends Roll Corporation...Ch. 19 - Prob. 5QPCh. 19 - Share Repurchase In the previous problem, suppose...Ch. 19 - Prob. 7QPCh. 19 - Prob. 8QPCh. 19 - Prob. 9QPCh. 19 - Prob. 10QPCh. 19 - Prob. 11QPCh. 19 - Prob. 12QPCh. 19 - Stock Repurchase Flychucker Corporation is...Ch. 19 - Prob. 14QPCh. 19 - Prob. 15QPCh. 19 - Prob. 16QPCh. 19 - Prob. 17QPCh. 19 - Prob. 18QPCh. 19 - Prob. 19QPCh. 19 - Prob. 20QPCh. 19 - Prob. 1MCCh. 19 - Jessica believes that the company should use the...Ch. 19 - Prob. 3MCCh. 19 - Another option discussed by Tom, Jessica, and...Ch. 19 - Prob. 5MCCh. 19 - Does the question of whether the company should...
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- Which of the following is NOT a consequence of the double tax on dividends? Question 15 options: Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment. Corporations have an incentive to invest in non-corporate rather than corporate businesses. The cost of capital for corporate investment is increased. Corporations have an incentive to finance operations with debt rather than equity. All of the above are consequences of the double tax on dividends.arrow_forward1. What are the company motives for declaring dividends or stock repurchase programs? 2. How would you argue for a significant increase in both dividends and repurchases instead of using the available cash to make investments, i.e. M&A? 3. Would the tax treatment of dividend income versus capital gains income affect the managers’ decisions to disburse cash via dividends versus stock repurchases?arrow_forwardIt has been suggested that in a world with only corporate taxation the value of the firm = the value of all equity financed + the present value of tax shield on debt finance Discuss how and why the existence of personal taxation might alter the choice of capitalstructure suggested in part (a) abovearrow_forward
- 1. How many of the following is/are advantage(s) of issuing bonds to raise capital? (A) Does not require interest payment when the entity is incurring severe losses; (B) Generally requires fixed interest payments which can easily be used in budgeting; (C) Interest is a tax-deductible expense.2. How many of the following is/are advantage(s) of issuing ordinary shares to raise capital? (A) No contractual obligation to pay dividends; (B) Presence of easily determinable maturity date; (C) Dividends are tax-deductible expenses.3. Which is true in these statements? Share warrants are often attached to debt instruments to entice creditors to also become ordinary shareholders especially when the entity would be unable to pay interests. [S2] An entity needing a large sum of financing would prefer issuing bonds with share warrants over bonds with conversion rights.4. Which is true in these statements? [S1] When unrelated traders buy and sell stocks, the entity which issued the shares will be…arrow_forwardWhat tax treatment do individual investors generally prefer in stock redemptions? Why? Some in the financial press were critical of seagram’s management for selling Du Pont stock for below current market price. Specifically, commentators said that Seagram;s management sold the Du pont stock at $4.50 per share less than market value, which damaged the wealth of seagram shareholders. Do you agree? Why or why not? Did Seagram's stock price increase in response to the large unexpected tax savings? What other explanations might there be?arrow_forwardIndicate whether the following statements are true or false. If the statementis false, explain why.a. If a firm repurchases its stock in the open market, the shareholders whotender the stock are subject to capital gains taxes.arrow_forward
- Which is false about long-term sources of a firm’s capital? a. Preferred shares are securities whose intrinsic value is based on prospective earnings b. Some types of bank loans may require collateral from potential debtors c. Retained earnings are internal sources of funding that can be utilized for expansion d. All types of corporations may issue equity securities to the publicarrow_forwardA corporation can raise money by selling stocks and/or bonds. From an investor's perspective, what is the difference between a bond and stock? O 1. If an investor owns a corporate bond, the investor owns a part of the company. O 2. A corporation guarantees interest payments to a bond investor but does not guarantee dividend payments to stock investor. O 3. A corporation guarantees dividend payments to a stock investor but does not guarantee interest payments to bond investor. O4. Stocks can appreciate in value, bonds do not change value.arrow_forwardWhich of the following is CORRECT? a. One advantage of operating a business as a corppration is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in partnership. b. Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk high return project rather than low risk low return. c. Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk low return projects rather than high risk high return project. d. One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor. e.…arrow_forward
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