Suppose a firm has a tax loss in the current period of $10 million, which when added to prior tax losses gives it an NOL carry forward of $15 million. The current top statutory tax rate is 35% but is expected to increase to 45% in 2 years. Assume an after-tax discount rate of 10% and future taxable income per annum of $2 million. The firm has a large NOL carry forward. Should the firm undertake clientele-based arbitrage by issuing preferred stock and buying corporate bonds?
Answer to relevant QuestionsYour colleague picks up the 2012 annual report of Microsoft (that we showed in Chapter 6) and finds that Microsoft reports an effective tax rate of 23.8% for fiscal year 2012 and 17.5% for fiscal year 2011. He argues that ...Why is the list of compensation alternatives in table not necessarily ordered from most desirable to least desirable for an employee? With the change in marginal tax rates in the TRA 86, would it have been tax disadvantageous for tax- exempt institutions such as Stanford University to establish deferred compensation arrangements in 1986 for their ...Suppose you will retire in 9 years. Throughout your life you will face a tax rate of 31% and earn an after-tax rate of return of 8% on your investments. Your company’s pension plan earns a 12% return, and the company ...Suppose Congress is expected to increase the corporate tax rate from 35% to 45% next year. RealNet. Com is scheduled to pay its CEO a salary of $1 million in the current period. The CEO’s tax rate is 40%. The CEO is also ...
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