five - Introduction to Corporate Financial Analysis...

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Introduction to Corporate Financial Analysis Introduction to Financial Analysis for Corporations by George W. Blazenko All Rights Reserved © 2008 Chapter 5 Taxation and Investment Returns “We don’t pay taxes, only the little people pay taxes. ” — Leona Helmsley (1920 - 2007), former New York hotel magnate. 1 1 The New York Times (July 12, 1989) – quoted by a housekeeper during Helmsley’s trial for tax evasion. In March 1992, Mrs. Helmsley, once the regal proprietress of the Helmsley Palace Hotel in New York, was sentenced to four years’ imprisonment. Helmsley’s tyrannical behavior earned her the nickname, the “Queen of Mean.” 200
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Taxation and Investment Returns Chapter Five Contents (5.1) 203 (5.2) 204 5.2.1 204 5.2.2 206 5.2.3 207 5.2 4 207 5.2.5 208 5.2 6 210 5.2 7 211 5.2 8 211 5.2 9 212 5.2 10 215 5.2 11 217 BEYOND INCOME TAXES, A NUMBER OF CAPITAL TAXES EXIST IN CANADA FOR FINANCIAL INSTITUTIONS. THE TAX RATE, FEDERALLY, IS 1.25% PER YEAR FOR TAXABLE CAPITAL EMPLOYED IN CANADA ABOVE $1 BILLION. IN BRITISH COLUMBIA, FOR FINANCIAL CORPORATIONS (BANKS, TRUST COMPANIES AND CREDIT UNIONS), THE PROVINCIAL CAPITAL TAX IS PAYABLE AT A RATE OF 1% FOR FINANCIAL CORPORATIONS WITH NET PAID UP CAPITAL EQUAL TO OR LESS THAN $1 BILLION AND 3% FOR FINANCIAL CORPORATIONS WITH NET PAID UP CAPITAL IN EXCESS OF $1 BILLION. 217 (5.3) 217 5.3.1 218 5.3.2 219 5.3.3 220 5.3.4 220 201
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Introduction to Corporate Financial Analysis 5.3 5 221 5.3 6 222 5.3 7 222 5.3 8 222 (5.4) 224 (5.5) 225 (5.6) 226 (5.7) 233 NET INCOME 233 (5.8) 237 202
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Taxation and Investment Returns (5.1) Yes, you really have to pay. It is a cruel fact that often taxes are an important component of any complete financial analysis for either individual investors or for corporations. For this reason, it is important that any financial analyst have some familiarity with not only the principles of taxation, but also with some of the actual tax rules. Of course, the only true authoritative source on income taxation is the Income Tax Act itself. It is not possible in a short chapter to adequately do justice to the intricacies, details, and complexities of this piece of legislation and its associated regulations. Instead, in this chapter, we summarize the essential aspects of income taxes. In particular, we focus on those aspects of income taxation that are likely important to corporations in their business activity or to investors in their investment activity. Taxation is always a moving target. By the time this document reaches your eyes, it will undoubtedly be the case that some of the material is obsolete or the details have changed. It is important, therefore, that you do not use this chapter as an authoritative source with which to do detailed tax planning. You can use this document as an introduction to the principles of tax and as an opportunity to begin to understand tax rules and how they impact firms in their business decisions and investors in their investment decisions. However, before you do anything rash
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five - Introduction to Corporate Financial Analysis...

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