What does it mean for a tax code to be convex? If a country's corporate tax rate is flat, does it make sense for a firm to hedge?
What will be an ideal response?
A convex tax code imposes a larger tax rate on higher incomes and a smaller tax rate on lower incomes. If a country's tax rate is flat, a key question is how losses are treated. If losses are subsidized immediately at the same rate that gains are taxed, there is no tax advantage to hedging. But, losses are usually not subsidized, as losses are typically only allowed to be deducted against future income. These tax-loss carry-forwards usually do not grow with the time value of money; nor are they indexed to inflation. Thus, the subsidy associated with a loss is less than the tax associated with a profit, and the tax code is effectively convex. There are also other legitimate reasons to hedge that are not tax related.
You might also like to view...
Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of theyear, respectively. Income reported on the income statement for the year was $110,000 . Exclusive of the effect ofother adjustments, the net cash flows from operating activities to be reported on the statement of cash flows usingthe indirect method is
a. $118,000 b. $110,000 c. $102,000 d. $150,000
A ________ features a product or service on which customers place a greater value than they do on similar offerings from competitors.
A. First mover advantage B. Power advantage C. Competitor advantage D. Competitive advantage
Distinguish between the two-tier and three-tier client server model. Describe when each would be used
________ is a tort that consists of encroaching on the solitude, seclusion, or personal affairs of someone who has the right to expect freedom from interference
A) Public disclosure of private facts B) Invasion of privacy C) False light D) Appropriation