There is a basic relationship between the market volume and corporate tax rates. A decrease in the corporate rates would allow companies to pay less on their earnings, leaving them with more Net Income (NI). With this increase in net income, a company can afford to invest in other areas or allows them to repurchase their stock. By repurchasing stock, the

market volume drops by the amount of stock that has been bought back. In addition, buying back shares can affect the overall outcome of the market that day depending on the company engaging in the repurchase. A company with a large stake in the market who buys back a considerable amount of stock will cause a fluctuation in the volume. In buying shares, the overall status of the market will rise due to the price increases that occur. On the other hand, if the opposite occurs, in which the tax rate is augmented, some firms may have different decisions to make. Because an increase in the tax rate affects a compan!

ision to repurchase. "One of the chief reasons corporations choose stock buybacks over cash payouts to reward investors is taxes" (Lazo, WSJ 3/12/01). To get an idea of what the corporate tax rates look like, look at the actual tax table (Figure 1).

ier than before, some insiders may begin to sell their shares of the firm. When this hits the market, it sends a negative signal to investors to sell, which will dump excessive shares onto the market. Conversely, if the degree of risk is not in excessive measures, investors might purchase more shares in hopes that the increased risk will yield a higher rate of return; a classic example of the risk-return trade-off.

Source: Needles, Anderson, and Caldwell, 1996.

The next decision a firm must make is how to finance the company. There are two possible options that they can take: debt or equity. The first of these two options is the most enticing for a Chief Financial Officer (CFO). Debt financing is considered a lower risk security that is based on a fixed contract. The future value of debt financing is fixed and is specified. A decrease in the corporate tax rate may not benefit this form of financing. A CFO is pleased by an increase in the corporate tax rate. This position in a corporation wants to keep as much debt as can possibly be sustained. According to Modigliani and Miller, the fathers of the Capital Structure Theory, in a perfect world, a leveraged firm would desire to keep the interest on the debt as high as possible because it will increase the corporation's tax shelter. Subsequently, a firm's value will also increase if the tax shelter is elevated. This can be determined by simply evaluating the value eq!

So by increasing the tax rate and keeping the interest from debt high, a firm drastically augments its own value. In this case, debt financing is the optimum choice whether the tax rate goes up or down; however, if a CFO had his wish, the rate would go up to benefit the comp

Some common words found in the essay are:
Wall Street, Share EPS, Income NI, Dow Jones, President Bush, Pecking Theory, Structure Theory, Anderson Caldwell, CFO Debt, Inc INAI, tax rate, equity financing, corporate tax, capital structure, tax rates, corporate tax rate, debt equity, corporate tax rates, repurchase stock, net income, market volume, capital-gains rate, decline corporate tax, capital-gains rate ordinary, debt equity financing,
Approximate Word count = 1760
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