Your 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 Microsoft thus faces a low tax rate. It should not have much long-term debt in its capital structure, your colleague maintains, and it should have issued preferred stock and invested idle cash in taxable bonds, and it should be leasing assets. Evaluate your colleague’s argument.
Answer to relevant QuestionsA currently profitable bricks-and-mortar retail firm is under attack from several Internet start-up firms. The top management has decided to join the Web competition and open up an Internet store. Given the strong ...If an employee exercises an NQO early in advance of an expected tax-rate increase, what costs or benefits might accrue to the employer? What are the tax benefits of a fringe benefit such as employer-supplied life and health insurance? What are the nontax costs associated with such a program? Why would some employees prefer salary to the insurance program? Under current law, employer-paid health insurance premiums are deductible by the employer and not taxable to the employee. Suppose instead only the first $1,000 of such premiums were nontaxable. If an employee was in the 15% ...Suppose you are an employee of HP Corporation. You face a personal marginal tax rate on ordinary income of 50%, and on capital gains the tax rate is 20%. Your after-tax opportunity cost of capital is 7% per year. You hold ...
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