Principles of Finance_Biederman_Date_030810

Principles of Finance_Biederman_Date_030810 - -If>30 tax...

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Assume 2 individuals-married/filing joint returns - Taxed @15% flat rate, example: mortgage interest payments Earned income = $100000 Dividends= $3000 Exemptions=$5600 Deductions=$500 $1040 income subject to tax of regular tax bracket Tax act 2003- special income but may no longer be taxed at a flat rate next year (dividends) Taxable income= earned income + dividends – exemptions – deductions - Look at Numbers from class slide on 2005 and 2008 federal tax handouts Interest income is treated like any other type of income Dividends are treated differently - Deals w. double taxation (paid out of profits than taxed again) Dividend received exclusion: any company who gets a dividend from another company, 70% is not subject to tax Taxable vs. tax-exempt bonds Example: highway using state debt $ interest paid/borrowed from taxpayers can’t be taxed by the government Municipals: no federal or state tax Muni vs. corp - At what rate are you indifferent—30%
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Unformatted text preview: -If >30% tax rate (muni)—reduces progressivity of federal income tax-If < 30% (corp) CHAPTER 3 Categories of financial ratios:-Who’s interested in what/why are they interested? o Short term solvency or liquidity ratios o Long term solvency of financial leverage ratios Bond/stock holders o Asset management/turnover ratio o Profitability rates o Market value ratios Price-Earnings Ratio (P/E) slide-Ratio for price or index: price divided by earnings/share-Example: 20= market price requires you pay $20 to buy $1 of earnings o Really buying the future value of it Trailing P/E- uses actual earnings of last year per share Forward P/E- uses forecasting earnings per share-If forward < trailing—P/E decreases but E increases Returns and P/E ratio slide Under/overvalued depends on future value of E Look at typical industry average P/E ratios slides...
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