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To: Hostage

"Corporations will charge what their markets will bear.
"

True, but don't misconstrue that to mean it is up to the company and its customers alone. Their competitors will bid down the price. Depending on how much competition there is for the product or service, this can lead to a minimum acceptable profit to yield the ROI that investors are looking for. ROI is not just important to initial investors as you seem to think. The stock market factors the current earnings and earnings potential into the stock prices every minute of every day. So new investors are expecting growth, dividends, or both and if they don't get it then they abandon the stock. That cripples the borrowing power and value of any treasury stock the company has retained. So ROI is always a concern to all investors, not just the initial investors.

(cont later)


48 posted on 12/14/2006 7:15:15 AM PST by Kellis91789 (Sarcasm should never need a tag.)
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To: Hostage

The issue of whether income taxes are built into prices is not answered by whether you find a line-item for an actual expense in the company's books. The point is that an estimate of the income tax burden will be a consideration in planning and setting prices. Obviously, it is, and so it is treated exactly like any other expense for planning prices -- even though it is only an estimate.

The calculation of estimated taxes is really not that complicated, and it is included before the exact taxes are known. It is done t determine what revenue targets the company needs to meet to satisfy all needs -- non-income-tax expenses, net profit, and tax expenses.

Non-tax expenses : 900
Net Profit : 65
Taxable profit : 65/0.65 = 100
Revenue Target: 1000

If pressured to achieve Net Profit of 150, the calc would change to:

Non-tax expenses : 900
Net Profit : 150
Taxable profit : 150/0.65 = 231
Revenue Target: 1131

If the tax rate is lowered to 15%, then a company would immediately know that it could adjust its revenue target to 1076 (900+(150/0.85)) and still satisfy expenses and desired net profit.




49 posted on 12/14/2006 9:51:32 AM PST by Kellis91789 (Sarcasm should never need a tag.)
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