HW Assignment Week 1 - The Talley Corporation had a taxable...

This preview shows page 1 - 6 out of 10 pages.

The Talley Corporation had a taxable income of $365,000 from operations after all operating costs, but before (1) interest charges of $50,000 (2) dividends received of $15,000 (3) dividends paid of $25,000, and (4) income taxes. What are the firm's income tax liabiity and its after-tax income. What are the company's marginal and average tax rates on taxable income. Income after operating costs: $365,000.00 Less: Interest Expense ($50,000.00) Plus: Taxable Dividends Received $4,500.00 Only 30% of the $15,000 in dividends are taxable. Taxable Income: $319,500.00 $319,500 falls into the $100,000 to $335,000 bracket so the corporate tax woud be: $22,250 + .39 ($319,500 - $100,000) Base Amount plus marginal rate x difference between taxable income - lower base Tax Liability = $107,855.00 Talley's marginal tax rate is 39% the rate on the last dollar of income subject to tax. Talley's average tax rate is: Tax Liability / Amount of Income Subject to Tax Average Tax Rate = $107,855/$319,500 = 33.76%
Image of page 1

Subscribe to view the full document.

The Wendt Corporation had $10.5 million of taxable income. a. What is the company’s federal income tax bill for the year? T= 3,400,000 + (10,500,000-10,000,000)x 35%= $3,575,000 b. Assume the firm receives an additional $1 million of interest income from some bonds it owns. What is the tax on this interest income? T = 1,000,000 x 0.35 = $350,000 c. Now assume that Wendt does not receive the interest income but does receive an additional $1 million as dividends on some stock it owns. What is the tax on this dividend income? T= (1,000,000 x 0.3) x 0.35 = $105,000
Image of page 2
The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yiel and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporate tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return o AT on bond: AT yield = 7.5% - T = 7.5% - 7.5% x0.35 = 4.875% Invest 10,000 = > interest = 10,000 x 0.075 = $750 Income = 750(1-T) = 750(1-0.35) = $487.5 Rate of return = $487.5/$10,000 = 4.875% AT&T preferred stock: Yield = 0.06 – T = 0.06 – 0.3x0.06x0.35 = 5.37% => invest in the preferred stock
Image of page 3

Subscribe to view the full document.

ld 5% (but are not taxable), on all three securities.
Image of page 4
The Moore Corporation has operating income (EBIT) of $750,000. The company’s depreciation expense is $200,000. What is its net cash flow?
Image of page 5

Subscribe to view the full document.

Image of page 6

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern