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5. Employee stock ownership plans (ESOPs) Aa Aa E Why would a firm be willing to establish an employee stock ownership plan (

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Answer #1

1. Options as below:

(i)cash dividends paid on ESOP stock are tax deductible if the dividends are used to repay the loan that established the ESOP

(iii) it is common for financial institutions to loan money to ESOPs at below market interest rates

2. The company's cash balance will be unchanged at the end of these transactions

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