Real World Case 12-6 Corporations frequently invest in securities issued by other corporations. Some investments are acquired to secure a favorable business relationship with another company. On the other hand, others are intended only to earn an investment return from the dividends or interest the securities pay or from increases in the market prices of the securities—the same motivations that might cause you to invest in stocks, bonds, or other securities. This diversity in investment objectives means no single accounting method is adequate to report every investment. Merck & Co., Inc., invests in securities of other companies.
As a C-corporation the business, not the owner, would be held liable for any financial damages. Any accidents involving employees or customers would be the responsibility of the corporation to settle. Financially speaking incorporating is the best option because as a sole proprietorship the owner is currently paying a much higher tax rate versus the corporate tax rate. With the tax code being different for corporations there is better profit retention and security. The client also mentioned the issue of partnership and the selling of stock in order to expand the company.
The total value of the levered firm exceeds the value of the firm without leverage due to the present value of the tax savings from debt: V^L = V^U + PV(interest tax shield) 4. when a firm’s marginal tax rate is constant, and there are no personal taxes, the present value of the interest tax shield from permanent debt equals the tax rate times the value of the debt, τcD. 5. The firm’s pretax WACC measures the required return to the firm’s investors. Its effective after-tax WACC, or simply the WACC, measure the cost to the firm after including the benefit of the interest tax shield. Page 484 has formulas!!
The acquiring company's basis in the stock of the acquired company is equal to the basis that the shareholder's had in their stock. In order to satisfy the expenses of an acquisition, an acquiring company may use a combination of 2 for 3 stock-for-stock exchange with shareholders of the target company and a tender offer of cash. Where possible, grantees often take advantage of a stock-for-stock exchange, as they usually increase a grantee's ownership position and require no cash outlay. Non-employee shareholders argue that stock-for-stock option price satisfaction adds to the already high expense of granting employees options, as the employees end up not having to pay the option price, which can add up to be a significant amount of cash if all employees granted options take advantage of stock-for-stock
Which of the following choices regarding the proprietary fund financial statements is true? A. The Statement of Net Assets (Balance Sheet) reflects equity as contributed equity and retained earnings. B. Normally, a reconciliation is required between the proprietary fund financial statements and the business-type activities column in the government-wide financial statements.
Chapter 15 52. [LO 3] Evon would like to organize SHO as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $200,000 investment. Assume individual and corporate tax rates are both 35 percent and individual capital gains and dividend tax rates are 15 percent. SHO will pay out its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume Evon is the sole owner of the entity and ignore self-employment taxes.
In the reconciliation of total reportable segments, the total corporate eliminations were $912 million. By looking at these numbers and policies of Verizon Communications Inc, the reader gets an inside look at how these intercompany transactions are vital for proper reporting. In Verizon’s case, if these were not done, there will be an increase in Income for 2013 of $912 million which is a significant
Case Clarkson Lumber Company Corporate Finance Summer 2015 Note: This handout is for your own use only and should not be distributed to others! 1 Introduction Clarkson Lumber Company is a rapidly expanding, profitable company with large external financing needs that cannot be satisfied under the current relationship with the Suburban National Bank The company must decide whether to continue expanding, and if so, how to raise the necessary funds As part of this decision Clarkson Lumber considers starting a new bank relationship with the Northrup National Bank in order to obtain a secured line of credit with a maximum amount of $750,000 at terms to be specified Analysis from the perspective of Clarkson Lumber Company and the bank 2 Main Issues • Why does Clarkson Lumber need to borrow increasing amounts despite its consistent profitability? • How has Clarkson met the financing needs of the company during the period 1993-1995? Has the financial strength of the company improved or deteriorated? • Will a credit line of $750,000 be sufficient to meet the company's financing needs in 1996?
Consequently we should take the average of all three models, because every model has it´s pros and cons against the other and we can´t decide which model calculates the right price. Because for the DDM we have to estimate the Dividends, because a non-publicly traded company does not give out dividends. The price-ratio model needs to compare the ratios of each company to similar companies within the industry. This could be tricky if Citrus Glow has the biggest market shares. The Corporate Value Model, also known as Free Cash Flow model also has it´s limitation regarding to the spending today and not in the past.