Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 4. corporate and personal taxes (20 marks) a) an i

4. Corporate and Personal Taxes (20 marks) a) An investor considers whether to invest in...

90.2K

Verified Solution

Question

Finance

image
image
4. Corporate and Personal Taxes (20 marks) a) An investor considers whether to invest in debt or equity of LIPPBORG PLC. Since he already has to pay a high personal tax rate, he does not want to pay more taxes than necessary Therefore, he weighs the pros and cons of investing in bonds or equities in the local financial markets. The personal tax rate on interest income is 30%, the corporate tax rate is 21% and the tax rate on dividends/capital gains is 15%. Which strategy do you recommend the investor - please explain your assessment (10 marks) re b) LIPPBORG PLC wants to assess the value of interest savings due to the tax deductibility of interest on debt. The corporate tax rate is given above. The total debt stands at $19 million and return on debt is 7.5 %. In case the current level of debt is permanent, - calculate the annual interest expense (before and after-tax consideration) and the present value of the perpetual tax shield. - explain limitations/conditions for utilization of the tax shield (10 marks)

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students