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a. You are engineering a Leveraged-Buy-Out (LBO) of ACME Industries, an industrial bottle maker. After the LBO, the firm will be financed with 90% debt and 10% equity. Fred Farber, the CEO, will own 30% of the shares. Fred thinks that the proposed capital structure is too highly levered and points out that, in the first few years, the firm will not be able to use all its debt tax shields. Initially, the interest payments are $400m per year and EBIT is only $300m per year. However, EBIT is projected to increase 20% per year for the next five years. Provide Fred a true tax argument that supports the high level of debt. Take into account his personal taxes as well as corporate taxes. Does your tax argument depend on whether Fred wants to dilute his ownership of the company in the future? b. Debt is always cheaper than equity. How would you respond to this comment?
Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC: • salary of $300,000; • Payment of Alan''s mobile phone bill ($220 per mont
(i) Discuss, using appropriate examples, the concept of ‘transfer pricing’ and explain why tax authorities around the world have become concerned about it.
should be on 2012 forms and done in pencil. It should include a schedule that shows the fiduciary income calculation and other relevant calculations. Jack Green established the Jac
In an effort to reduce alcohol consumption, the government is considering a $1 tax on each gallon of liquor sold (the tax is levied on producers). Suppose that the supply curve for
Prepare a 2012 Schedule D, including Form 8949 and Form 4797 based on the data provided. Provide a memo summarizing any assumptions made, if any. You do not need to prepare the tax
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Given the below information, provide the journal entry to recognize tax expense. Assume taxes are paid immediately (with cash). Note: the statutory rate is assumed to be 40%. As
David builds and maintains web applications for a number of clients. He does a majority of his work from his home office, but he frequently drives to the client site to meet with h
BBQ Beach corporation manufactures inflatable air-matresses and life jackets for summer fun. the firm is considering replacement of their existing production line (CCA Class 8, d=2
Department of Accounting Principles of Federal Income Taxation IOWA STATE UNIVERSITY ACCT 485 (SPRING 2013) ?TO: Tax Consulting Team FROM: Jon Perkins DATE: March 26th, 2013 RE: Ta
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