Chapter 17, Problem 4CT

Summary Introduction

Corporate tax: The direct tax levied on the net income of the company is called as corporate tax.

Tax Preference: When a shareholder gets some deductions against payment of taxes for share it is termed as tax preference. A shareholder receives tax preference only in long-term.

Dividend payment: The amount that shareholders receive in return of their investment is called a dividend. The dividend is paid according to the number of share of each shareholder. Preference shareholder receives a fixed rate of dividend but equity shareholders receive dividend only when there is a profit in the company.

Share repurchase: In order to reduce the number of outstanding shares, Company decides to purchase its own shares from the open market. This is called as share repurchase.

To determine:

The kinds of payout preference that tax code typically creates.