Explain how the tax structures related to dividends, unrealized capital gains, and the deductibility of corporate...

Explain how the tax structures related to dividends, unrealized capital gains, and the deductibility of corporate debt influence the methods used by corporations to engage in investment.

Expert Solution

Text structure related to dividend, unrealized capital gains and the detectability of corporate debt influence the decisions of an entity regarding its investment to a very large extent.

Debt is highly preferable in case, it is providing with the interest rate tax shield because the periodic repayment schedule on debt in the form of interest is deductible for the company and it helps in reducing the overall tax expenditure of the company.

Capital gains are taxable so a company to highly manage its capital gains, in order to invest because if a company want to keep it short term, then it will attract a higher rate of tax and if the company want to keep it long term, it will attract a lower rate of tax company need to manage its preferences accordingly.

Unrealised capital gains are to be managed in such a way that company should pay the minimum rate of tax because if unrealized capital gains are realised before they become the long term, capital gain would be treated as short term capital gain and it would be taxed higher in comparison to long term gains.

Show the overall taxes paid on an investment is highly important in deciding upon the nature as well as the term of investment

jeff jeffy answered 1 year ago

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