Question

Explain, from the perspective of corporate financing, the different tax implications between interest payment to lenders...

Explain, from the perspective of corporate financing, the different tax implications between interest payment to lenders and dividend payment?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Interest payment to lenders are part of debt of the firm. The interest expenses are tax deductible and form a tax shield which helps the firm save money. Interest expenses are paid to lenders. Debt is a form of financing for running / expanding the company.

Dividend is a portion of the net profits of the company which is paid to shareholders. It is discretionary for the management. Dividend payout ratio determines the amount of dividends paid. The rest of the net profit is retained as retained earnings for running / expanding the business. So, more the dividend, less the amount left for retaining for growth / normal operations of the firm.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
7. Lenders protect themselves from conflicts of interest with shareholders through: Group of answer choices cooperative...
7. Lenders protect themselves from conflicts of interest with shareholders through: Group of answer choices cooperative agreements signed by shareholders and lenders limiting the amount of funds bondholders lend loan agreements that prohibit borrowing companies from undertaking excessive risk offering lenders a share of profits 8. Corporate finance (Financial management) deals with main three types of managerial decision making problems in the context of business except: Group of answer choices Investment decision making problems Financing decision making problems Staffing decision...
Assume that Will's marginal tax rate is 40 percent and his tax rate on dividends is...
Assume that Will's marginal tax rate is 40 percent and his tax rate on dividends is 15 percent. If a dividend-paying stock (with no growth potential) pays a dividend yield of 7.2 percent, what interest rate must the corporate bond offer for Will to be indifferent between the two investments from a cash-flow perspective?
Explain how tax cuts affect the economy from a Supply-Side economist’s perspective.
Explain how tax cuts affect the economy from a Supply-Side economist’s perspective.
Explain how tax cuts affect the economy from a Supply-Side economist’s perspective.
Explain how tax cuts affect the economy from a Supply-Side economist’s perspective.
PART 1: Why Corporate Bonds are carrying "exchange prices" fluctuating everyday and different from it's original...
PART 1: Why Corporate Bonds are carrying "exchange prices" fluctuating everyday and different from it's original "Issued Prices" by corporations? PART 2: Describe how the market interest rate, relative to the contractual interest rate, affects the selling price of bonds. Also explain the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates.
From your perspective, what are the top three characteristics that an ethical corporate leader must exhibit?...
From your perspective, what are the top three characteristics that an ethical corporate leader must exhibit? Explain WHY (2 pts.)
Required: Advise as to the tax implications for these facts regarding the Kim Family Trust. You...
Required: Advise as to the tax implications for these facts regarding the Kim Family Trust. You do not need to calculate the exact amount of tax payable. The Kim Family Trust is a discretionary trust that, for the current year, earned dividend income (unfranked) of $50,000 and rental income of $20,000. It paid interest of $10,000 on the loan used to purchase its rental property and shares. It has a corporate beneficiary, K Pty Ltd. During the current tax year,...
why is interest added back to profit before tax when calculating return on total assets? A....
why is interest added back to profit before tax when calculating return on total assets? A. to reflect the fact that the efficient use of resources should be examined independently from the method of financing. B. because it must be paid regardless of profits. C.because interest rates are variable over time. D. to indicate to lenders that some risk is involved d. to indicate to lenders that some risk is involved
You had four policy decisions to make on interest rates, income tax rates, corporate tax rates...
You had four policy decisions to make on interest rates, income tax rates, corporate tax rates and government spending and were measured on four outcomes: GDP growth, unemployment rate, inflation rate, and budget surplus (or deficit). What is the theoretical or textbook link between each of the decisions and each of the outcomes? Positive? Negative? or Neutral? [You may create a four by four grid that simply shows the connection, but you should explain the connections] GDP growth Unemployment rate...
To understand the advantage of debt capital from a tax perspective in the United States, determine...
To understand the advantage of debt capital from a tax perspective in the United States, determine the before-tax and approximated after-tax weighted average costs of capital if a project is funded 20%–80% (D-E mix) with debt capital borrowed at 11% per year. A recent study indicates that corporate equity funds earn 20% per year and that the effective tax rate is 38% for the year. The tax advantage reduces the WACC from_______% to __________% per year
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT