Answered: What does an increase in the tax rate…

What does an increase in the tax rate on corporate profits do to a firm’s coverage ratio? increases it decreases it nothing

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 3QTD

See similar textbooks

Related questions

Q: QUESTION 2 Dividend policy can affect the value of the firm for which of the following reasons? a.…

A: Dividend policy can affect the value of the firm for following reasons

Q: Which one of the following is not a characteristic of Modigliani-Miller Propositions with corporate…

A: MM proposition with tax: if tax is allowed, the firm increases its value with introducing debt…

Q: If the corporate tax rate is greater than zero, how would taxes affect the firm's cost of capital?

A: Solution:- Cost of capital means the minimum rate of return required by the investors of a firm ie.…

Q: Question Investors who wish to avoid paying taxes in the present are typically . A.…

A: Dividend clientele is a group of stockholders who shares the views about the policy related to…

Q: If Congress wants to stimulate the economy, explainhow it might alter each of the following: (a)…

A: (a) If congress wants to stimulate the economy, it must reduce the personal income taxes for the…

Q: Consider the following statements: The interest tax shield for a firm: I. Is the tax benefit a firm…

A: Explanation : In simple words, Interest tax defenses or shields apply to the elimination of the tax…

Q: Which of the following is NOT a consequence of the double tax on dividends? Question 15…

A: Please find the answer to the above question below:

Q: Consumer prices will increase

A: Correct Answer is :- A Consumer price will increase

Q: Which ONE of the following statements is FALSE? O Firms report peripheral gains and losses on a…

A: Restructuring is a process in which company change their capital structure, and debt convert into…

Q: .

A: Tax Evasion Tax evasion is the unlawful act of a person or a business attempting to avoid…

Q: Despite MM's original theory on the value of a company related to its capital structure, the theory…

A: Correct option is C.Extra cash flow goes to the firm's investors rather than the tax authorities.…

Q: Consider the following statements: The interest tax shield for a firm: I. Is the tax benefit a firm…

A: In a world with taxes, debt financing is usually cheaper than equity because the interest paid on…

Q: What is the optimal dividend policy with taxes when the dividend ta capital gain tax rate? Why does…

A: Capital gain tax refers to the tax or mandatory charged levied by the government over the profit…

Q: What would be a reason a company would want to overstate income?A. to help nudge its stock price…

A: Income of the business is very important and useful measure of profitability of the business. More…

Q: Which of the following changes will result in an increase to a company’s sustainable growth rate?…

A: Sustainable growth rate is the growth rate a firm can expect without any additional finance growth…

Q: The cost of capital for a firm, rWACC, in a tax-free environment is: I) equal to the market value…

A: Formula for cost of capital= Wt. of equity * Cost of equity + Wt. of debt * Cost of debt * (1- Tax…

Q: How would each of the following changes tend to affect aggregate (i.e., the average for…

A: Payout ratio is the profitability ratio required for analysis from owner’s point of view which…

Q: uestion 1 An increase in the corporate tax rate for company X will generally O Increase X's cost of…

A: Cost of debt is effected by the tax structure because debt have advantages of tax sheild of…

Q: ich of the following statements best describes the purpose of the dividend refund? A) The…

A: Step 1 Tax revenue earned by an organization can be processed or used in a variety of ways, although…

Q: Which of the following is not something that corporations can do with their profits? a. Pay…

A: Corporations are large company or group of companies.

Q: Discuss why the after-tax cost of equity (common or preferred) does not have to be adjusted by the…

A: Equity shareholders are considered as owners of the company and amount invested by equity…

Q: political risk to a company's bottom line?

A: Introduction: Political risks can be defined as those risks which would be faced by the investors or…

Q: Income taxes have the effect of A. increasing the cost of debt for a firm. B. decreasing the cost of…

A: Income tax is a compulsory payment made to government on income earned during financial year. Income…

Q: Why do the companies in high tax brackets incur lower after-tax interest costs by financing through…

A: Debts are the liability issued by the company to raise funds. The debt holder receives fixed…

Q: What tax treatment do individual investors generally prefer in stock redemptions? Why? Some in the…

A: ‘’Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Most states limit dividend policy by requiring that dividends ____. a. not be paid unless the…

A: There are various policy which limit dividend policy

Q: the effects of increasing the amount paid upfront when corporations make capital purchases with a…

A: Capital expenditure is an expense, that generates profits for a longer period of time which can be…

Q: The Miller’s model proved that a firm’s value is unaffected by its capital structure. But their…

A: The Modigliani-Miller model suggests that market value of the company depends on future earnings…

Q: If the present value of a firm's marginal financial distress costs are equal to the present value of…

A: Financial distress costs means the firm cannot pay its debt or firms have insufficient cashflow.…

Q: In a Modiqliani and Miller world with corporate taxes, companies A and B are identical except for…

A: Capital structure (CS) is the combination of different finance sources. It consists mainly of equity…

Q: Holding other factors constant, an increase in the tax rate on revenue generated by capital will:…

A: Increase in tax rate acts as the addition of tax liability of the business. This tax rate is…

Q: Which is not a benefit of debt to the corporation? a. interest payments are tax deductible b. when…

A: When debt is borrowed heavily, it increases the burden of interest and principal repayment. When…

Q: How would an increase in corporate taxes tend to affect an average firm’s capitalstructure? What…

A: A corporate tax is a tax charged on the profits of a corporation. The personal tax is a tax charged…

Q: Dividend policy can affect the value of the firm for which of the following reasons? a. Personal…

A: 1. Dividend policy can affect the value of the firm for which of the following reasons d. all of…

Q: What is the relative tax advantage of debt when corporate and personal taxes are considered?

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: It has been suggested that in a world with only corporate taxation the value of the firm = the value…

A: Capital structure of a firm signifies the mix of equity and debt for financing. According to the…

Question

What does an increase in the tax rate on corporate profits do to a firm’s coverage ratio?

		increases it
		decreases it
		nothing

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

If the corporate tax rate is greater than zero, how would taxes affect the firm's cost of capital?
How would an increase in corporate taxes tend to affect an average firm’s capitalstructure? What about an increase in the personal tax rate?
What would be a reason a company would want to overstate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show a decrease in overall profits D. none of the above
What would be a reason a company would want to understate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show an increase in overall profits D. to increase investor confidence
Which of the following will increase the WACC for a tax-paying company? Decrease the proportion of equity financing Decrease the proportion of debt financing Decrease the market value of the equity Increase the market value of the debt
If you take corporate taxes and the cost of financial distress are into consideration, the market value of a firm should equal the value of the all-equity firm the present value of the tax shield the costs of financial distress. O plus; plus O plus; minus O minus; minus O minus; plus
Why do the companies in high tax brackets incur lower after-tax interest costs by financing through debt?
How might capital rationing conflict with the goal of maximizing shareholders' wealth?
5 Which of the following would not affect a company's net income? A change in the company's income taxes Changing the selling price of a company's product Paying a dividend to stockholders Advertising a new product
Which of the following is a political risk to a company's bottom line? Spot exchange rates Changing tax rates Stable exchange rates Forward tax rates
If the present value of a firm’s marginal financial distress costs are less than the present value of its marginal tax shield, the company Select one: a. has too much debt in its capital structure b. should increase the amount of debt in its capital structure c. has an optimal capital structure d. should increase the amount of equity in its capital structure e. none of the above
Under the trade-off theory, lowering the corporate tax rate will incentivize companies to increase the ratio of debt in their capital structure. Question options: a) True b) False