CHAPTER 2 HOMEWORK TAX FORMULAS.docx

# CHAPTER 2 HOMEWORK TAX FORMULAS.docx - CHAPTER 2 HOMEWORK...

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CHAPTER 2 HOMEWORK TAX FORMULAS: A firm would issue securities in the money market versus the capital market because: A. Transactions in short-term debt instruments, or marketable securities, take place in the money market. B. Money markets are short-term markets, so firms using these would be in need of funds for less than a year. C. Capital markets are typically used for fixed assets, which a company will use over several years. Corporate tax liability: (use rate schedule) Tax Liability=Basic tax+ Marginal tax Taxable income = 90,400 =13750+ 34% of ( 90,400-75,000) =18986 After tax liability= Taxable income-tax liability = 90,400-18986 =71414 Average Tax Rate= Tax liability/Taxable Income =18986/ 90400 =21% Marginal Tax Rate= (given on table) =34%

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Tax on operating income: Interest VS. Dividend Income Firms tax= Pretax operating earning x Tax Rate =485,000 x .21 =101850 Compute tax and after-tax amount attributable to the interest income: Before tax amount: 25,000 Exclusions: 0 Taxable income: 25,000 Tax @ 21%: 5250 After tax amount: 19750 Compute tax and after-tax attributable to the interest income: Before tax amount: 25000
• Summer '08
• Taxation in the United States, Money market

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