Evaluate the implications of new, lower dividend and capital gains rates.


Evaluate the implications of new, lower dividend and capital gains rates.

Returns on Investment:

Return on investment refers to the profit expected by an investor from an investment. Taking for example investment in common stocks the are returns will be mainly dividends that are payable and the capital gains that are realized after sale of the stock. An investment with high returns is more attractive.

Answer and Explanation:

  1. A low rate of dividends and capital gains will have an effect on government revenue. The government earns its revenue from taxation. Capital gains may be subjected to the capital gains tax while dividends may be subjected to withholding tax. Therefore a lower rate of oof aying dividends and capital gains will adversely affect the government revenue.
  2. On the other hand, investors will find their investment not profitable and may consider other forms of investment. If an investment is not profitable then investors may transfer their investment to other investment activities that are more profitable.
  3. On the issuing company, there will be more money that will be retained, therefore, increasing the internal source of funds. If the company pays less than the permissible dividends more money will be retainedin the business to finance operations.

Learn more about this topic:

Investment Spending: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 16

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