Assume the budget chancellor cut the corporation tax to 25% from 30% reduces income tax main rate to 20%..?

Question

Assume that in the next Budget the Chancellor cuts the main rate of Corporation tax to 25% (from 30%), reduces the standard rate of income tax to 20% (from 22%) and increases the higher rate of income tax to 50% (from 40%). In addition assume that 100% writing down allowances are introduced for the purchase of plant and machinery.

Required:

Evaluate how these tax changes are likely to impact upon the firm’s capital structure, dividend and leasing decision. Use relevant theoretical and empirical work to illustrate your answer.

Can anyone help???

Answer 1

It will affect leasing decisions in that the corporation would be less likely to lease and more likely to purchase machinery because it is now a higher write off.

Dividends would be less likely because the corporate tax rate decreased so they would pay less on their profits.

That's all i got for ya, good luck!