Question

A) Relying STRICTLY on our classroom discussion: the US corporate tax rate was recently reduced from 35% to 21%. In the near future, would you expect the target (optimal) D/V ratios of US companies to increase or decrease as the result of this change? (2-3 sentences)

B) What LEGISLATIVE change (i.e. a law or a regulation), if adopted, would most likely cause the target (optimal) D/V ratios of US companies to move in the OPPOSITE direction compared to the one you predicted in part (A)? (2-3 sentences)

C) Relying STRICTLY on our classroom discussion: Assume US personal tax rates on capital gains will be reduced next month. In the near future, would you expect the propensity to pay dividends among US companies to increase or decrease as the result of this change? (2-3 sentences)

D) The need for financial flexibility is sometimes used as explanation for the tendency of US firms to utilize LOWER D/V ratios compared to the (optimal) target ratios based on the trade-off between tax benefits and distress- or agency-related drawbacks associated with debt financing. Give one argument for why the need for financial flexibility is likely NOT the reason for relatively low D/V ratio utilized by Walmart. (2-3 sentences)

Answer 1

Answer :-

A ) :-

Yes we think the decrease in corporate duty rate from 35% to 21% will result in enhancement in D/V proportion as organizations can utilize the funds to satisfy the obligation.

Further this will result in increment in held income for the investors there by bringing about enhancement in D/V proportion .

B ):-

If US enactment is changed to charge higher rate of corporate expense and force import obligations it will result in inverse d/v proportion because of decrease in income owing to investors of the Companies because of expanded installment of corporate assessments.

C ) :-

If US individual charges on capital additions are lessened then we would think penchant to pay Occident pay among organizations would increment.

As Dividend will be saddled at lower rate in hands of individual s

D ) :-

Financial adaptability generally includes the loss of a few advantages in return for picking up benefit.

For precedent, support of advantages that are promptly trad-capable available is the indication of money related adaptability, yet it additionally perhaps reliant on yield rate and it ought to be adequate which is significantly less than the rate that can be accomplished from interest in resources with lower liquidity. Monetary adaptability can decrease dangers identified with activities, for instance, by decreasing the danger of chapter 11 amid decays of money streams from tasks.

When all is said in done, in each dimension of operational hazard, a substance that has elevated amounts of money related adaptability, in correlation with business units with a low money related adaptability, goes up against with lower add up to dangers.