Question

There is talk of lowering corporate tax rates in the US to “bring back” money “held”...

There is talk of lowering corporate tax rates in the US to “bring back” money “held” overseas. If the corporate tax rate drops what do you think will happen to corporate debt levels? Dividends? Buybacks?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Corporate Debt levels will decrease with decreasing taxes as the interest tax shield will decrease and the excess money due to low taxes will be used to pay off debts.
Dividends will increases as cash levels will increase which a company can distribute among its share holders. Cash flow to creditors will increase.
There will be reduction in buybacks as companies would try to reduce debt first . However if the company is all equity firm it will try to use excess cash ti buy back shares and it will increase its share value.

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well

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
There is talk of lowering corporate tax rates in the US to “bring back” money “held”...
There is talk of lowering corporate tax rates in the US to “bring back” money “held” overseas. If the corporate tax rate drops what do you think will happen to corporate debt levels? Dividends? Buybacks?
Take a look at the current corporate tax rates. What is your opinion on the current...
Take a look at the current corporate tax rates. What is your opinion on the current brackets, limits and corresponding rates? Why do you think they are what they are? What would you change?
US companies are looking at "Inversion" whereby they switch their corporate headquarters abroad to avoid paying...
US companies are looking at "Inversion" whereby they switch their corporate headquarters abroad to avoid paying the higher US corporate tax rate. Do you support this idea? Do you think it is fair that companies can do so and avoid paying US taxes? Would you continue to patronize businesses that do so? Alternatively, what should US companies do to level the tax playing field?
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...
a. What is the relative tax advantage of corporate debt if the corporate tax rate is...
a. What is the relative tax advantage of corporate debt if the corporate tax rate is Tc = .39, the personal tax rate is Tp = .25, but all equity income is received as capital gains and escapes tax entirely (TpE = 0)? (Round your answer to 2 decimal places.) Relative tax advantage b. How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 15%? (Do...
3. Suppose the corporate tax rate is 40%, investors pay a tax rate of 20% on...
3. Suppose the corporate tax rate is 40%, investors pay a tax rate of 20% on income from dividends or capital gains and a tax rate of 30% on interest income. Rally, Inc., currently an all-equity firm, is considering adding permanent debt through a levered recapitalization (Rally plans to raise 300 million through debt and payout the proceeds to shareholders). Interest Rally will be paying each year is expected to be $15 million. Rally will pay this interest expense by...
Assuming that Amazon’s $6 billion debt is not perpetual, and that the corporate tax rate is...
Assuming that Amazon’s $6 billion debt is not perpetual, and that the corporate tax rate is 35%. Given the bonds’ interest rates, how much value does Amazon’s $6billion debt add to the firm? In other words, what is the present value of the tax shield generated by the debt issuance? Note: The $6 billion offering has 5 parts, so you need to compute a present value of tax shield for each part.
2013 Corporate Tax Rates If a Corporation's Taxable Income Is It Pays This Amount on the...
2013 Corporate Tax Rates If a Corporation's Taxable Income Is It Pays This Amount on the Base of the Bracket Plus This Percentage on the Excess over the Base (Marginal Rate) Average Tax Rate at Top of Bracket Up to $50,000 $0 15.0% 15.0% $50,000 - $75,000 7,500 25.0 18.3 $75,000 - $100,000 13,750 34.0 22.3 $100,000 - $335,000 22,250 39.0 34.0 $335,000 - $10,000,000 113,900 34.0 34.0 $10,000,000 - $15,000,000 3,400,000 35.0 34.3 $15,000,000 - $18,333,333 5,150,000 38.0 35.0...
What the macroeconomic effects of the Tax Cuts and Jobs Act on the US after the...
What the macroeconomic effects of the Tax Cuts and Jobs Act on the US after the cuts of income tax rates (by about 3%) and the corporate tax rate (from 35% to 21%).? i) Briefly explain the economic rationale behind the tax cuts. ii) Discuss whether such fiscal policies eventually achieve their goals . Are there any negative macroeconomic effects of such fiscal policies that you can identify? (You should investigate in detail which macroeconomic variables are affected as well...
Suppose that instead of plowing back money bank into lucrative ventures, Tencent China’s management is going...
Suppose that instead of plowing back money bank into lucrative ventures, Tencent China’s management is going to invest in the capital market where expected return on equity (ROE) is 5%, which is below the return of 6.8% that investors could expect to get from comparable securities. It is expected to pay a dividend next year of RM0.63. Assume the zero growth value of Tencent China is RM13.51. Required: (a) Find the sustainable growth rates for the dividends and earnings in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT