🙋 Student Q&A (Lecture 2)

Click here to learn about timestamps and my process for answering questions. Section agendas can be found here. Email office hour questions to robmgmte2700@gmail.com. PS1Q2=“Question 2 of Problem Set 1”

No Section on Saturday, Feb 7 ✅

No section

📅 Questions covered Monday, Feb 9

🕣 9:16pm
❔ Where are the problem sets? Where do I find them?

✔ in video

🕣 9:18pm
❔ How does the taxation of S corporation earnings work compared to C corporation earnings?

✔ did an example earlier

🕣 9:19pm
❔ Could we please go over Example 1 from the first day of class? I don’t fully understand what the question is asking for and how to break it down.

✔ Covered earlier when covering this page: https://2700.robmunger.com/l2/twotypesofcorporatetaxation/

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❔ What are the main differences between an S corporation and a C corporation?

✔
#owners, Taxation. See same page. It’s just a distinction within the IRS. Sometimes an S-corporation is referred to simply as a corporation that has elected to use Subchapter S taxation. So if you want to set up either an S-corporation or a C-corporation, you go to the Secretary of State and you say, “Hey, I want to form a corporation,” and you don’t even have to decide at that point whether it’s an S-corp or a C-corp. That only happens later on when you start filing documents with the IRS.

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❔ I have a question about Example 2.4, page 35 in the textbook. Here, the formula for enterprise value is introduced:

Enterprise Value = Market Value of Equity + Debt - Cash

It seems like the 118.7 refers only to the short-term debt and long-term debt of the company used as an example in the textbook, excluding accounts payable? Why is this so, i.e., why are accounts payable not included? I am struggling a bit to understand when a liability is called “debt”, and when it is called something else (maybe it’s a linguistic issue, since English is not my native language).

✔ A liability is called a debt when it originates because you borrowed money. However, you can accumulate other liabilities in the course of doing business, such as accounts payable.

Going earlier today, we talked about the various ways of interpreting Enterprise Value. As you could see from that presentation, it’s extraordinarily difficult to understand. The easiest way to do it is what I refer to as the leverage buyout approach, which says that the enterprise value is how much it would cost to buy all of the securities which represent claims on the firm. So you just buy up all the stock and all the debt. That’s probably the easiest way to think about it.

Let me know if you have any further follow-up questions.

🕣 9:27pm
❔ I was reviewing my notes on C Corps and was wondering if the IRS has implemented any form of “tax integration” to account for double taxation? I wanted to ask because I know in Canada this is the case and the government specifically provides tax credits to try to offset some of the burden of double taxation. I know this is beyond the scope of the course, but I’m just curious if you have any knowledge of this.

✔ Double taxation, unfortunately, is alive and well in the United States. Perhaps we can learn a little bit more from our neighbors to the north.