1.

)
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
erickamaeebalo@usant.edu.ph
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.)
Answers to the queries regarding the advice received from D.

1. Can C Inc. deduct the director's remuneration of up to P10,000 a year against the dividend
income?
Yes, C Inc. can deduct the director's remuneration of up to P10,000 a year against the
dividend income. This deduction would reduce the taxable income of C Inc.

2. How much would be liable to corporation tax at a rate of 10%?

The balance of P18,000 (after deducting the director's remuneration) would be liable to
corporation tax at a rate of 10%. This means that P1,800 (10% of P18,000) would be the
amount of corporation tax payable by C Inc.

3. Can C obtain tax relief by paying premiums into a personal pension scheme?
Yes, C can obtain tax relief by paying premiums into a personal pension scheme.
Contributions made to a personal pension scheme are eligible for tax relief, which means
that the amount contributed can be deducted from C's taxable income.