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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: S. maltophilia who wrote (14286)	2/18/1998 2:25:00 PM
From: Zeev Hed	Respond to of 18056

Khalil, in an earlier post, I believe I went through the calculation of ROI on different investment including stock dividend and other businesses. If a company does not get dangerously leveraged, it might even make sense for them to borrow money to buy back stock, since the cost of borrowed funds might be at 7% or so tax deductible (thus only about 4%) while the effective rate of return on buying back stock might be 13% because of the avoidance of taxation. They should stop taxing dividends and then companies will go back to paying 30% to 50% of their earnings out as dividends. As long as dividends are taxable, and interest is deductible, it will make sense to leverage and even have bad allocation of financial resources. Zeev