Taxpayer requested a letter ruling on whether or not the discounts received constitute as constructive dividends received. The IRS indeed ruled the discounts received by the taxpayer constituted as constructive dividends under section 316 and the distribution applied to section 301. A constructive dividend is a form of payment made by a corporation to its shareholders that resulted in any measurable economic benefits to the shareholder. It can either be a direct or an indirect form of payment and mostly occurs in closely held corporations. These payments can also be distributed both advertently and inadvertently.
Case #25 Gainesboro Machine Tools Corporation Objectives In September 2005, Chief Financial Officer (CFO) Ashley Swenson, of a computer –aided design and computer-aided manufacturing (CAD/CAM) equipment manufacturing company had to make the decision of paying out dividends to shareholders, or to repurchase stock. If Swenson went with the option of the payout she would need to decide on how large the payout would be. Another issue Swenson had to face was to decide rather the company should take on the campaign of corporate-image advertising, and convert its corporate name to mirror its new outlook. The case serves as a review of the many practical aspects of the dividend and share buyback decisions, to include signaling effects, clientele effects and the finance and investment implications of increasing dividend payouts and share repurchase decisions. This case can follow a treatment of the Miller-Modigliani dividend-irrelevance theorem and serves to highlight practical considerations to consider when setting a firm’s dividend policy.
If you were a minority shareholder in Koito Manufacturing, whose side would you take – Koito’s or Pickens? Calculate the value of your shares with and without Toyota. [Hint: you should imagine some alternative scenarios of what would happen to the cash flows under both situations and use the Discounted Cash Flow methodology, for example]. Based on your assessment of the case, are large shareholders an effective solution
Disadvantages: Double taxation, cost of set-up and report filing. c. How do corporations go
Cost of capital can help define the acceptability of investment opportunities. Besides, the cost of capital can scheme the corporate finance arrangement. Generally, the best way for designing the corporate finance structure is based on information of changing of the capital market. So, manager can figure out information like accounting reports and their cost of capital to market. By using the information, manager can use cost of capital for restructure the market price and earning per share in order to bring advantage for company.
The team will determine how Dow’s initiative affects costs and sales. Team C must also describe the risks associated with the initiative and financial effects they may have. A strategic planning process delivers a set of defined initiatives (projects) that achieve a desired set of business goals (McDonald, 2007). A strategic initiative must be planned out and backed up with data to become an initiative worth undertaking. Dow Chemical increases its sales and eliminates risk by undertaking profitable initiatives.
FIN 921 Tutorial solutions - Week 2 Autumn 2012 Chapter 1 Answers to Critical Thinking and Concepts Review Questions *1.3. Corporations. What is the primary disadvantage of the corporate form of organisation? Name at least two of the advantages of corporate organisation. Solution: The primary disadvantage of the corporate form can be the agency problem or the double taxation to shareholders of distributed earnings and dividends for some shareholders.
τ = 34% can be used as a proxy for federal tax rate in the US). • The cost of debt RD should reflect the reality of the company. Each company knows its debt rate premium that they will have to pay for their debt, that is, it knows the spread over the treasury that lenders will require to lend
Legality Financial reporting activities and standards Earnings management has been used as the manipulation of the current standard of financial reporting established by G.A.A.P. Earnings management is when companies inflate their earnings or revenues. We have seen this with WorldCom who altered capital expenditures instead of expensing them. Waste Management also did this when it extended the useful life of its trash trucks. Materiality is defined by the FASB as an omission that would affect a normal person by a misstatement such as using earnings management to skew the true earnings or revenue.
Abstract This paper is discusses the Milton Friedman Theory and how it applies corporations and the government. It will also discuss the responsibilities of firms and the government and whether or not they play a role in the expansion the Friedman Discussion. Milton Friedman Goal of the Firm Milton Friedman is a noble prize winning economist whose philosophy on corporate social responsibility (CSR) has shaped the business world today. Friedman believed that businesses only social responsibility is to utilize resources and engage in activities that would maximize profits without the use of deception or fraud while conforming to the basic rules of society (Friedman, 1970) . Executives are hired to act as fiduciary agents of their stockholders for the purpose of increasing wealth (Smith, 2003).