HLTH fin HW - C He should invest his surplus fund in bond...

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HOMEWORK 1 1 . A: 8(1-.34) = 5.28 B: 8(1-T) = 6 8T=2 T=2/8 = 25% - the investor would be indifferent between the bonds C: I nvestor should prefer Municipal Bonds as they are not subject to tax rate, and thus offer higher Yield. 2. A: $15,000(1 - 0.70) = $4,500. $15,000 0.3 $4,500 Tax = $22,250 + ($319,500 - $100,000)(0.39) = $22,250 + $85,605 = $107,855. Tax liability = $107,855 Taxable income $319,500 Taxes -$107,855 Plus Non-taxable dividends received $10,500 Net income $222,145 B:$15,000 x 0.7 = $10,500. The company’s marginal tax rate is 39 percent . The company’s average tax rate is $107,855/$319,500 = 33.76% 3. A: Tax liability= 1200000+250000=1450000 B. Tax rate= 30%
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Unformatted text preview: C. He should invest his surplus fund in bond as he gets more from bonds 4. A : After Tax Income = 750000 - 200000 = 550000*(1-.40) = 330000 B: Net Cash Flow = After Tax Income + Depreciation = 330000 + 200000 = 530000 5. A: Cost = 1100000 (Purchase Value) Year Macrs Depreciation % Annual Depreciation 1 14.29 157190 2 24.49 269390 3 17.49 192390 4 12.49 137390 5 8.98 98780 6 8.92 98120 7 8.93 98230 8 4.46 49060 B: Annual Depreciation = (1100000 - 75000)/5 = 102500 C: It will increase the amount of depreciation per year thereby reducing the value of earning before taxes. This would further result in a decline in the tax liability of the company....
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