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1.
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ABS-CBN Corporation was founded in 1946 and is a Filipino media company based in Quezon
City, Metro Manila, Philippines. It is the largest radio broadcaster, entertainment television
production, program syndication provider and media conglomerate in the Philippines.On the
basis of various fundamental qualitative criteria, the company appears to be particularly poorly
ranked from a medium and long-term investment perspective.
ABS-CBN Corporation
Memo
Date: March 9, 2024

From: Ericka Mae C. Ebalo
Subject: Analysis of Capital Structure and Implications on Company Valuation
Dear ABS-CBN Management,

I am writing to provide an analysis of the capital structure of ABS-CBN Corporation and
discuss its implications on the current valuation of the company. Additionally, I will highlight the
tax implications and the possible impact of the proposed Corporate Recovery and Tax
Incentives for Enterprises Act (CREATE Bill) on ABS-CBN Corporation.
Capital Structure Analysis:

ABS-CBN Corporation's capital structure refers to the way the company finances its operations
through a combination of debt and equity. By analyzing the company's capital structure, we can
gain insights into the risk profile, financial stability, and potential valuation of the company.
Based on the available information, ABS-CBN Corporation appears to be poorly valued given its
net asset value. However, it is considered one of the best yield companies with high dividend
expectations. This indicates that the company's capital structure may have an impact on its
valuation.
Implications on Company Valuation:

The capital structure of ABS-CBN Corporation has implications on the valuation of the company
in the following ways:
1. Cost of Capital: The capital structure affects the cost of capital, which is the weighted average
cost of debt and equity. A higher proportion of debt in the capital structure increases the cost of
capital due to higher interest expenses. This can impact the valuation of the company by
reducing its present value of future cash flows.
2. Financial Risk: A high level of debt in the capital structure increases financial risk. It can lead
to higher interest payments and potential challenges in meeting debt obligations. Investors may
perceive higher financial risk, which can impact the valuation of the company.
Tax Implications:
The proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Bill) aims to
provide tax incentives and reduce the corporate income tax rate for businesses. The
implications of this bill on ABS-CBN Corporation's capital structure and valuation are as follows:
1. Reduced Tax Liability: If the CREATE Bill is enacted, ABS-CBN Corporation may benefit from
reduced corporate income tax rates, resulting in lower tax liabilities. This can positively impact
the company's financial performance and valuation.
2. Attractiveness to Investors: The proposed tax incentives under the CREATE Bill may make
ABS-CBN Corporation more attractive to investors, potentially increasing demand for its shares.
This can have a positive impact on the company's valuation.
It is important for ABS-CBN Corporation to carefully evaluate the implications of the capital
structure and the potential impact of the CREATE Bill on its valuation. Consideration should be
given to optimizing the capital structure to balance financial risk, cost of capital, and tax
efficiency.
Should you require further analysis or clarification on any aspect of this memo, please do not
hesitate to reach out.
Thank you for your attention to this matter.
Sincerely,
Ericka Mae C. Ebalo

Financial Analyst
[email protected]
2.)
1. Sole Trader:
Norma, as a sole trader will be operating the business as an individual, the tax implications
are,
- Income Tax: Norma will be subject to individual income tax rates on the profit of
P600,000. The tax rates for individuals in the Philippines range from 0% to 35%
depending on the income bracket.
- Self-Employment Tax: As a sole trader, Norma will be responsible for paying the
3% percentage tax on gross sales or receipts, as required by the Bureau of Internal
Revenue (BIR).
= 600,000 - 400,000 * 25% = 50,000 +30,000 = 80,000
2. Corporation:
If Norma chooses to operate as a corporation and draw out all the profits as a dividend, the
tax implications are,
- Corporate Income Tax: The corporation will be subject to a flat corporate income
tax rate of 30% on its profits. In this case, the profit of P600,000 will be subject to
corporate income tax.
- Dividend Tax: When the profits are distributed to Norma as a dividend, she will be
subject to a 10% final withholding tax on the dividends received.
3. One Person Corporation (OPC):

If Norma decides to operate as a One Person Corporation, draw a salary of P150,000 a
year, and draw out all remaining profits as a dividend, the tax implications are as follows:
- Salary Tax: Norma's salary of P150,000 will be subject to individual income tax rates,
similar to the sole trader option.
- Corporate Income Tax: The OPC will be subject to a flat corporate income tax rate of 30%
on its profits.
- Dividend Tax: When the remaining profits are distributed to Norma as a dividend, she will
be subject to a 10% final withholding tax on the dividends received.
3.)
Dear Fellow Partners,
Regarding the queries raised by Client C regarding the advice given to him by his friend, D, we
have thoroughly reviewed the information provided and would like to address each query based
on the assumption that today's date is 1 April 2016:
1. Director's Remuneration and Dividend Income:

D has suggested that C can draw out director's remuneration of up to P10,000 a year from C
Inc. and that this amount can be deducted against the dividend income received. It is important
to note that the deductibility of director's remuneration against dividend income may be subject
to specific tax regulations and limitations in the jurisdiction where C Inc. operates. We
recommend consulting with a tax professional or accountant to determine the exact rules and
restrictions regarding this matter.
2. Corporation Tax on Dividend Income:

D has mentioned that the balance of P18,000 (after deducting director's remuneration) would
only be liable to corporation tax of 10%. The tax treatment of dividend income and the
applicable corporation tax rate may vary depending on the tax laws in the jurisdiction where C
Inc. operates. It is advisable for C to seek professional tax advice to accurately determine the
tax implications of dividend income received by C Inc.
3. Tax Relief through Personal Pension Scheme:

D has suggested that C could obtain tax relief by paying premiums into a personal pension
scheme. The availability and specific details of tax relief for pension contributions depend on the
tax laws and regulations in the jurisdiction where C operates. We recommend consulting with a
financial advisor or pension specialist who can provide guidance on the tax benefits and
considerations related to personal pension schemes.
Please note that the information provided is based on the assumptions given and should not be
considered as personalized financial or tax advice. It is crucial for C to consult with qualified tax
professionals, accountants, and financial advisors who can assess his specific circumstances
and provide tailored guidance based on the applicable tax laws and regulations.
If you have any further questions or require additional assistance, please feel free to reach out.
We are here to support each other in providing the best advice to our clients.
Sincerely,
Ericka Mae C. Ebalo

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1.

Date: March 9, 2024

Dear ABS-CBN Management,

Capital Structure Analysis:

Implications on Company Valuation:

Thank you for your attention to this matter.

Ericka Mae C. Ebalo

3. One Person Corporation (OPC):

1. Director's Remuneration and Dividend Income:

2. Corporation Tax on Dividend Income:

3. Tax Relief through Personal Pension Scheme:

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