Mindtapv2.0 Finance, 1 Term (6 Months) Printed Access Card For Brigham/houston's Fundamentals Of Financial Management, 15th (mindtap Course List)
Mindtapv2.0 Finance, 1 Term (6 Months) Printed Access Card For Brigham/houston's Fundamentals Of Financial Management, 15th (mindtap Course List)
15th Edition
ISBN: 9780357114575
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 14, Problem 4Q
Summary Introduction

To identify: The effect of change in personal tax rate on the company’s capital structure.

Introduction:

Capital Structure:

Capital structure refers to the securities or debt included in the total capital of the firm. Adequate capital structure is required for the optimum utilization of funds.

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If Congress increased the personal tax rate on interest, dividends, and capital gains butsimultaneously reduced the rate on corporate income, what effect would this have on theaverage company’s capital structure?
If the corporate tax rate is greater than zero, how would taxes affect the firm's cost of capital?
If Congress wants to stimulate the economy, explainhow it might alter each of the following: (a) personaland corporate tax rates, (b) depreciation expenseschedules, and (c) the differential between the taxrate on personal income and long-term capitalgains. How would these changes affect corporateprofitability and free cash flow? How would theyaffect investors’ choices regarding which securities to hold in their portfolios? Might any of theseactions affect the general level of interest rates?
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