All Questions
Tagged with corporate-finance taxation
10 questions
1
vote
2
answers
71
views
Impact of the corporate tax rate on the cost of equity (Modigliani & Miller Proposition II)
Consider Modigliani & Miller Proposition II with corporate taxes. The cost of equity is
$$
R_E=R_U+(R_U-R_D)\cdot \frac{D}{E}\cdot (1-T_C) \tag{1}
$$
where $R_E$ is the cost of equity, $R_U$ is ...
- 2,611
2
votes
2
answers
41
views
Effect of tax on required return on debt (and equity)
Debt financing has a tax advantage over equity financing, as the borrower gets reimbursed the tax on interest payments and other debt-servicing costs. Thus
$$
R_{\text{WACC}}=\frac{E}{E+D}R_E+(1-T_C)\...
- 2,611
0
votes
1
answer
100
views
Cost of debt, taxes and WACC
I am studying the cost of debt. Without loss of generality, suppose the debt consists of bonds. On the one hand, some textbooks (e.g. Hillier et al. "Fundamentals of Corporate Finance: 4th ...
- 2,611
1
vote
1
answer
616
views
Shouldn't corporate tax be calculated based on EBIT instead of EBT?
When I was studying Corporate Finance in university, I was surprised to learn that it is more advantageous for corporations to take more debt (even if they don't need to) because it creates tax shield ...
- 115
1
vote
1
answer
58
views
Would the market stabilize if companies paid taxes on revenue instead of gross income?
Note: there is a closed question that is similar (https://money.stackexchange.com/questions/126677/paying-taxes-revenue-vs-taxes-profit) but the response offers a perspective that I would like to ...
- 193
0
votes
1
answer
1k
views
How to calculate capital investment?
So i have this question:
After spending 3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of 6 million. This ...
3
votes
1
answer
48
views
Can corporate tax loss carryforward function like a sort of insurance policy?
I'm a graduate student in mathematics, with a casual knowledge of economics, so please let me know if this question is a non-sequitur or off base.
Here's the intuition I'm trying to capture: Suppose ...
- 81
1
vote
1
answer
66
views
Is corporate tax an argument in equal income tax (from labour and capital) debate and does the return on capital depend on rate of the corporate tax?
In our country we have 25% personal income tax on labour, 15% corporate tax on corporations and 10% personal income tax on income from capital (e.g. dividends). Pundits in our country are saying that ...
- 435
5
votes
3
answers
3k
views
How are shell companies used for tax evasion?
The recent release of leaked documents on Mossack Fonseca has information on corporations and individuals using the firm's services for, among other things, tax evasion:
The massive security breach ...
- 152
2
votes
1
answer
80
views
Free Cash Flow to the Firm
I've got this question:
Explain why the FCFF does not incorporate interest expenses and what is the potential bias in the valuation if corporate taxes exist.
Now, we know that in the Free Cash ...
- 123