Please do 6, thank you
Part II- Long Answers (Total 60 points) 5. Using what you have learnt in class, evaluate Corporate income taxation from efficiency and equity perspectives? (10 points) 6- Suppose that a firm needs to attract investment to buy land. The nominal interest rate on the firm's debt is 4 percent. The proportion of the investment financed by debt is 30 percent, the shareholders' nominal required rate of return on equity is 8 percent, and the inflation rate is 3 percent. (30 points) a. What is the minimum rate of return needed to attract the funds from investors to finance buying the land? For parts b-c, consider a corporate tax system with the following features: The statutory corporate income tax rate is u = 0.27! There is no investment tax credit (ITC) for buying land. Nominal interest payments on the firm's debt are tax deductible, but the opportunity cost of equity finance is not. Note that provincial sale taxes do not fall on land purchases. b. Find the before-tax rate of return that will generate the after-tax hurdle rate of return required by the firm's stakeholders. What is the Marginal Effective Tax Rate (METR) in this case? c. Explain in plain English, what is the impact of a reduction in statutory corporate tax rate on METR? 7- Consider lowering the tax rate of middle-income bracket from 23% to 20.5% and increasing the top federal tax rate on incomes >$200,000 from 29% to 33%. (20 points) Part II- Long Answers (Total 60 points) 5. Using what you have learnt in class, evaluate Corporate income taxation from efficiency and equity perspectives? (10 points) 6- Suppose that a firm needs to attract investment to buy land. The nominal interest rate on the firm's debt is 4 percent. The proportion of the investment financed by debt is 30 percent, the shareholders' nominal required rate of return on equity is 8 percent, and the inflation rate is 3 percent. (30 points) a. What is the minimum rate of return needed to attract the funds from investors to finance buying the land? For parts b-c, consider a corporate tax system with the following features: The statutory corporate income tax rate is u = 0.27! There is no investment tax credit (ITC) for buying land. Nominal interest payments on the firm's debt are tax deductible, but the opportunity cost of equity finance is not. Note that provincial sale taxes do not fall on land purchases. b. Find the before-tax rate of return that will generate the after-tax hurdle rate of return required by the firm's stakeholders. What is the Marginal Effective Tax Rate (METR) in this case? c. Explain in plain English, what is the impact of a reduction in statutory corporate tax rate on METR? 7- Consider lowering the tax rate of middle-income bracket from 23% to 20.5% and increasing the top federal tax rate on incomes >$200,000 from 29% to 33%. (20 points)
