Explain would profit change associated with sales changes

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Reference no: EM133332024

Question 1. Changes in sales cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.

Question 2. Why do public utilities generally use different capital structures than biotechnology companies?

Question 3. The cost of retained earnings is less than the cost of new outside equity capital. Consequently, it is totally irrational for a firm to sell a new issue of stock and to pay cash dividends during the same year. Discuss the meaning of those statements.

Question 4. How would each of the following changes tend to affect aggregate (i.e., the average for all corporations) payout ratios, other things held constant? Explain your answers.

a. An increase in the personal income tax rate

b. A liberalization of depreciation for federal income tax purposes-that is, faster tax write-offs

c. An increase in interest rates

d. An increase in corporate profits

e. A decline in investment opportunities

f. Permission for corporations to deduct dividends for tax purposes as they now deduct interest expense

g. A change in the Tax Code so that realized and unrealized long-term capital gains in any year are taxed at the same rate as ordinary income

Reference no: EM133332024

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