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Calculate Solutions to Assigned Problems (7 Points)
1) Chapter 3 – Problems 1, 2, 3, and 5; Chapter 4 – Problems 7, 8, 9, and 10
An investor recently purchased a corporate bond which yields 9%. The investor is in the 36% combined federal a
9%(1 ' 0.36) = 5.76% or 5.8%
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View Full Document and state tax bracket. What is the bond’s aftertax yield?
Calculate Solutions to Assigned Problems (7 Points)
1) Chapter 3 – Problems 1, 2, 3, and 5; Chapter 4 – Problems 7, 8, 9, and 10
Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal
bonds of equal risk currently yield 6%. At what tax rate would an investor be
indifferent between these two bonds?
0.75
0.25
a.
25%
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View Full Document Calculate Solutions to Assigned Problems (7 Points)
1) Chapter 3 – Problems 1, 2, 3, and 5; Chapter 4 – Problems 7, 8, 9, and 10
Little Books Inc. recently reported $3 million of net income. Its EBIT was $6 million,
and its tax rate was 40%. What was its interest expense? [Hint: Write out the
headings for an income statement and then fill in the known values. Then divide
$3 million net income by (1–T)
0.6 to find the pretax income. The difference
between EBIT and taxable income must be the interest expense.
EBIT = 6000000, Taxes = .4, Pretax income = net income/ (1tax)
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This note was uploaded on 06/02/2010 for the course ACC 624 taught by Professor Smith during the Spring '10 term at Grand Canyon.
 Spring '10
 SMITH
 Accounting

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