You are a manager deciding how to distribute future cash flows in a way that wil

Question

You are a manager deciding how to distribute future cash flows in a way
that will maximize the value of the firm. Assume the corporate tax rate
is 30%, and that the tax rates on dividends and on realized capital gains
to equity are both 20%. The tax rate on ordinary income depends on the
tax payer. Suppose you are choosing between using cash to make dividend
payments and paying interest on debt. At what tax rate for ordinary income
would you be indifferent between the two? Explain your reasoning carefully.

Explanation / Answer

.The taxes are divided in to savaral types.That is the personal tax, income tax,cor-poration tax&so on.The tax is net refers to the payment that are taxed.Whic include personal earnings (wages),capital gains, bussiness income. the tax rate may be prograsive, regrasive,(or)proportial. for instance $10,000inearnings may be taxed 5% in before later on it will be increasing to 10%.the personal tax is also a onetype of tax. personal tax is ofter collected on a PAY-AS-YOU-EARNINGS. a small corrections made soon ofter the end of the tax year.Thetax is collected by the government&this is the extra benifit of the government &this is useful to the people's&the other government activities.

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