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HallHomework1

# HallHomework1 - FI360 Week 1 Homework Randall Hall...

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FI360: Week 1 Homework Randall Hall Professor Trevino, I took this class previously, so I had some of the homework already done, and some of these answers are a copy from that previous work. I hope it is formatted and structured how you want it, and the answers meet your expectations. Thanks, Randy Problem 1-1 If the firm is organized as a partnership, operating income will be taxed only once, so investors will receive \$500,000 x (1-0.45) = \$275,000. If the firm is organized as a corporation, operating income will be taxed once at the corporate level and again at the personal level, so investors will receive only \$500,000 x (1- 0.36)(1-0.45) = \$176,000. The “corporate tax wedge” is thus \$99,000, or 19.8 percentage points. Using the pre-1981 tax rates, partnership investors would receive a net \$150,000 of operating income, while corporate stockholders would be able to keep only \$75,000 of the \$500,000 in operating income. Problem 2-2 a. Operating cash flow = EBIT – Taxes + Depreciation = \$4,500 – \$1,300 + \$1,600 = \$4,800 b. Free cash flow = OCF – FA – ( CA – A/P – Accruals)

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HallHomework1 - FI360 Week 1 Homework Randall Hall...

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