Running head: CLIENT LETTER

Client Letter Kenya Stanley ACC 565 Organizational Tax Research and Planning January 27, 2014 Dr. Karaffa

CLIENT LETTER Walker Accounting 1111 46th Street North Tulsa, OK 74106

January 15, 2014 Jordan Houston, Chief Financial Officer Houston Industries 1111 46th Street North Tulsa, OK 74106 Dear Mr. Houston: It is a pleasure to be able to address you today in reference to your new company, Houston Industries. As there is a drastic need for ways to ensure compliance with the Health Insurance Portability and Accountability Act (HIPAA) in the medical profession, I am excited to see the technology that you incorporate. You contacted me on January 12, 2014 inquiring if it would be more advantageous to use debt or equity for capital formation of the new corporation. While both equity and debt capital have their own advantaged and disadvantages, debt capital holds the biggest tax advantages for you company. In reaching this conclusion, research was performed on both debt and equity capital. Specific attention was paid to the tax advantages and disadvantages of each. Also taken into consideration was any information disclosed to us about your company and its operations. The interest paid on debt capital is tax exempt; hence, the company's loan costs are lowered. Creditors have no say in the conduct of the business, so by issuing debt capital, the company does not dilute the ownership rights of the shareholders. Also, as the interest rates are predetermined, the management is able to budget for the payments. During the initial years of the company's formation, it is able to raise equity capital more easily than debt capital. The company is not, at any time, obligated to repay the money as long as it operates, and the company pays dividends only if it makes profits. However, tax payments are required on dividends. Another consideration is that both instruments, debt and equity, are viewed and evaluated by credit rating agencies. Once all of the volatility and safety features related to each capital type have been dissected, the credit rating agency will make recommendations of where to invest. In this case, they agree that debt capital is currently the best option.

CLIENT LETTER Conclusion To re-iterate what has previously been said, according to the research conducted by Walker Accounting and a credit rating agency on behalf of Houston Industries, it has been determined that currently debt capital is the best financing option due to tax advantages. Since this may not be the case in the future, it is suggested that research be conducted each time that additional capital is needed in order to verify which type of capital would best suit the companys needs at that time.

If you have any questions concerning this recommendation, please call me via phone @ 214-861-0882 or email at Walker@walkersaccounting.com.

Sincerely,

Kenya Walker

CLIENT LETTER

References Raghavendra, P. (2014, January 15). Comparison of Issue Debt vs. Equity | eHow. eHow. Retrieved from http://www.ehow.com/about_7593181_comparison-issue-debt-vsequity.html