Adams Corporation manufactures appliances. This year, the government increased the corporate tax rate by 5 percent. Adams responded by raising its prices. Customer demand remained steady; therefore, Adams's before-tax profits increased and after-tax profits remained constant. Required: Who bears the incidence of the increase in Adams's corporate tax? How would your answer change if Adams did not raise prices, resulting in a decline in its after-tax profits and a drop in the market price of its stock?
Adams Corporation manufactures appliances. This year, the government increased the corporate tax rate by 5 percent. Adams responded by raising its prices. Customer demand remained steady; therefore, Adams's before-tax profits increased and after-tax profits remained constant. Required: Who bears the incidence of the increase in Adams's corporate tax? How would your answer change if Adams did not raise prices, resulting in a decline in its after-tax profits and a drop in the market price of its stock?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter15: Distributions To Shareholders: Dividends And Repurchases
Section: Chapter Questions
Problem 2Q: How would each of the following changes tend to affect aggregate payout ratios (that is, the average...
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Adams Corporation manufactures appliances. This year, the government increased the corporate tax rate by 5 percent. Adams responded by raising its prices. Customer demand remained steady; therefore, Adams's before-tax profits increased and after-tax profits remained constant.
Required:
Who bears the incidence of the increase in Adams's corporate tax?
How would your answer change if Adams did not raise prices, resulting in a decline in its after-tax profits and a drop in the market price of its stock?
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