"Executives would prefer to show lower earnings per share because the company's tax bill will be reduced." Discuss
Q: Write down two reasons why may have decided to retain such a large percentage of their earnings
A: Write down two reasons why may have decided to retain such a large percentage of their earnings.
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"Executives would prefer to show lower earnings per share because the company's tax bill will be reduced." Discuss
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- Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement. Required: Given the above critically discuss the alternative measures to offering discounts to customers that could prove more effective in reducing the working capital requirement for a company with only minimal potential reductions in profitability.the effects of increasing the amount paid upfront when corporations make capital purchases with a focus on the benefits and the drawbacks.Debate Over Allowing Big Businesses to Lower Tax Overheads The question of whether big businesses should be permitted to lower their tax overheads is a contentious issue that touches upon economic, social, and ethical considerations. Advocates argue that businesses have a fiduciary responsibility to their shareholders to maximize profits legally. Employing tax planning strategies to minimize tax liabilities allows businesses to retain more earnings, which can be reinvested into the company for expansion, innovation, and job creation. Additionally, proponents contend that tax incentives and deductions provided by governments are designed to encourage investment and economic growth, and businesses have the right to take advantage of these incentives within the confines of the law. On the other hand, critics argue that allowing big businesses to lower their tax overheads through aggressive tax avoidance measures can have detrimental effects on society. Such practices can exacerbate income…
- how do compensation plans, including bonus structures, drive behavior? How can transfer pricing, for example, lead to outcomes that are not in the best interests of the organization? What do you think about executive bonuses tied to stock prices in a public company? What other issues can you see with compensation plans?4. Which of the below statements is false about the Static Tax Clientele Theory of payout policy? Investors with high capital gains tax relative to marginal income tax prefer cash dividends An individual company cannot increase its value by changing its payout policy Companies with high dividend payout rates attract investors with relatively low tax rates There is a static equilibrium where companies with low dividend payout rates attract investors with relatively high tax rates None of the aboveSeeking to maximise the current year’s profit is not a sensible objective for most businesses for several reasons. Which is the only one of the following that is not such a reason? Group of answer choices It can be achieved by increasing the number of shareholders. It ignores wealth generation. It ignores risk. It ignores longer term profitability.
- JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer has been added to its LIFO inventory in each of the years the method has been used. The company's inventory turnover ratio has averaged 4.5 in recent years. Management attempts to maintain a stable level of inventory at each store; the growth in inventory has been due to new stores being opened each year. In 20X1, the board of directors approved an incentive program that pays managers a sizable bonus in each year that certain performance targets are met. For 20X2, targeted earnings per share are $3.35. In an effort to track progress toward meeting this target, management produced the following income statement for the first nine months of 20X2. JKW Corporation Income Statement January 1-September 30, 20X2 Sales $13,284,000 Cost of goods sold Gross margin Operating expenses…Companies are far more reluctant to cut dividend than to increase them. Why might this be the case? What are the implications for financial markets when firms announce that they will be cutting dividends?How would an increase in corporate taxes tend to affect an average firm’s capitalstructure? What about an increase in the personal tax rate?
- 4. Classify each of the following factors/cases based on whether they favor a low dividend policy or high dividend policy? (explain why) A. The tax on capital gains is deferred until the gain is realized. B. Few, if any, positive net present value projects are available to a firm. C. A majority of the shareholders have a low tax rate. D. A majority of the shareholders have better investment opportunities than the firm. E The presence of an agency conflict with the company's senior managers.Under the trade-off theory, lowering the corporate tax rate will incentivize companies to increase the ratio of debt in their capital structure. Question options: a) True b) False
