Explain why, in a world with both corporate taxes and the chance of bankruptcy, a small firm

Question:

Explain why, in a world with both corporate taxes and the chance of bankruptcy, a small firm with volatile EBIT is unlikely to have much debt.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Macroeconomics

ISBN: 978-0321675606

6th Canadian Edition

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone

Question Posted: Aug 18, 2017 01:43 PM

See More Questions

If the U.S. government completely eliminated taxation at the corporate level, how would this influence the capital structures of firms in a world with bankruptcy?
Company Y is yet another company which is currently financed only by the Equity capital. Y is operating in the same industry as that of X. Its summarized Capital structure is as follows: $ Ordinary...
Consider firm B as an unlevered firm and firm C as a levered firm with target debt-to-equity ratio (B/S)* = 1. Both firms have exactly the same perpetual net operating income, NOI - 180, before...
A stream of particles of one size are 80% converted (SCMIash diffusion control, uniform gas environment) on passing through a reactor. If the reactor is made twice the size but with the same gas...
A 2-kg box slides down a long, frictionless incline of angle 30. It starts from rest at time t = 0 at the top of the incline at a height of 20 m above the ground. (a) What is the original potential...
Compared with a drip system, an infusion pump reduces the cost of administering chemotherapy from $25 per dose to $20 per dose. The complication rate of each system is 2 percent. Which should you...
The mean wages for a sample of employees in a company was $$18.00$ per day with a standard deviation of $$2.50$ per day. Between what two values do 95% of the data lie? (Assume the data set has a...
Moby Inc. is considering two alternatives to finance its construction of a new $2 million plant. (a) Issuance of 200,000 shares of common stock at the market price of $10 per share. (b) Issuance of...
1 2 10. Let A = and B = X 3 -1 2 If AB = find x and y. 8
You have been asked by the Payroll Manager, Linda Laporte, to create a short job aid to assist the payroll practitioners with reconciling the Revenu Qubec (RQ) account. Your organization is a monthly...
Suppose you were the financial manager for a firm and were considering a proposed increase in the amount of debt in the firm's capital structure. If you thought the firm was going to consistently...
Would you expect a utility company to have high or low debt levels? Why?
Assume that everything stated in Problem 11 remains the same except that the bonds are not perpetual. Instead, they have a $1,000 par value and mature in 10 years. In problem The Great Northern...
Throughout history, societal influence has greatly influenced marketing decisions made by companies in all industries. The world has been affected by many difficult times in history, such as war,...
Identify Central Issues: How does comparative advantage explain why countries trade?
Pancake Village had sales of $1.5 million with depreciation of $350,000 and other operating costs that ran 35% of sales. They paid $180,000 in dividends with a tax rate of 40% and interest expense of...
Company M has reported the following information for the month of February: Direct labor $ 4 5 , 0 0 0 Manufacturing overhead applied $ 9 0 , 0 0 0 Direct materials inventory has decreased by $ 1 1 ,...
Evaluate logz (+)
Nuclear magnetic resonance (NMR) is a technique for analyzing chemical structures and also the basis of magnetic resonance imaging used for medical diagnosis. NMR relies on sensitive measurements of...
(a) How far away can a human eye distinguish two ear headlights 2.0 m apart? Consider only diffraction effects and assume an eye pupil diameter of 5.0 mm and a wavelength of 550 nm. (b) What is the...
Lap Dogs Inc. is planning for next year and has the following summarized results so far ($000): Income Statement EBIT ..........236 Interest ...........? EBT ............? Income tax .........? EAT...
The Libris Publishing Company had revenues of $200 million this year and expects a 50% growth to $300 million next year. Costs and expenses other than interest are forecast at $250 million. The firm...
Larime Corp. is forecasting 20X2 near the end of 20X1. The estimated year-end financial statements and a worksheet for the forecast follow. Management expects the following next year. An 8% increase...
1) Explain how a Preschool program can help to bring a sense of belonging for the child? 2) It is important for a program to provide physical environments that are age-appropriate and that support...
Your company decided to organize a special dinner to appreciate all the employees and it has been proposed that the dinner to be held in the middle of December 2021. You have been appointed as the...
Select a two-dimensional image to analyze that is either a work of art (photograph, illustration, or painting) or an advertisement. What is the FTC analysis?Use the FTC palette to break down the...

Explain why, in a world with both corporate taxes and the chance of bankruptcy, a small firm

Question:

Step by Step Answer:

In such a firm debt would gr...View the full answer

Macroeconomics

Students also viewed these Corporate Finance questions