Tara and Jeff Wish to Form TJ Corporation

question 684

Essay

Tara and Jeff wish to form TJ Corporation. They have determined that they need initial capitalization of
$1,000,000. What tax issues should they consider when determining whether to issue stock only or some combination of debt and equity?

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Definitions:

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted, representing the average cost of funding from all sources.

Pure Play

A company that focuses on a specific industry or product segment without diversification into other areas.

Capital Structure

The combination of borrowing and ownership funds that a business employs to finance its activities and expansion.

Financing

The act of providing funds for business activities, making purchases or investing.