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Novation Companies, Inc. Message Board

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  • aquin532003 aquin532003 Dec 22, 2004 9:14 PM Flag

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    real simple example: suppose that the irs said that admin expenses were not deductible, so that taxable earnings went up. as a result, dividend payments based on taxable income would rise. but the company would not have economic earnings to pay the dividend, so the company had to raise capital to pay the dividend. but the dividend payout would rise.

    if we could lobby the irs to disallow admin expenses as a taxable expense to increase the value of the company, would that be a good thing?

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    • res_severa_est_verum_gaudium res_severa_est_verum_gaudium Dec 22, 2004 9:25 PM Flag

      Bad example.

      In the real world, the biggest differences between book & tax are non-cash accruals--like loan losses...not cash items such as admin

      Front loading dividends does not require equity to pay them. Equity is required to fund portfolio growth, and a steady dividend implies some need to grow the portfolio

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