Taking the perspective of a corporation that is raising capital, why would the pretax cost of equity and debt capital differ, other than because of differences in risk?
Answer to relevant QuestionsWhy is it so difficult to measure the effects (if any) of taxes on the pretax returns of assets? What are some of a firm’s tax attributes? Why is an acquirer concerned with the effect of an acquisition on a target firm’s tax attributes? What are four common divestiture techniques? What are the nontax benefits, if any, of a stock acquisition? What are the nontax costs, if any, of a stock acquisition? Hurricane, Inc., is an S corporation. Orleans, Inc., wants to acquire Hurricane for cash. Hurricane’s shareholders have a tax basis in their stock of $ 3,000 and Hurricane has assets with a net tax basis of $ 3,000 (cost = ...
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