a)
To calculate: The tax disadvantage of retained cash in the year 1998.
Introduction:
Tax disadvantage of retained cash is a tax disadvantage that a company pays to its shareholders, rather than investing in any projects because they have to pay tax from the amount received from the company. On the other hand, if the company retains its cash and invests in any other project with positive
Usually, the
b)
To calculate: The tax disadvantage of retained cash in the year 1976.
Introduction:
Tax disadvantage of retained cash is a tax disadvantage that a company pays to its shareholders, rather than investing in any projects because they have to pay tax from the amount received from the company. On the other hand, if the company retains its cash and invests in any other project with positive net present value, then the value of the company will increase. This will make the shareholder to pay the tax only on capital gains.
Usually the capital gain tax rate is lower than the dividend tax rate.
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