Business Finance Answers_Part_4

Business Finance - CHAPTER 2 B-13 24 a The tax bubble causes average tax rates to catch up to marginal tax rates thus eliminating the tax advantage

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 2 B-13 24. a. The tax bubble causes average tax rates to catch up to marginal tax rates, thus eliminating the tax advantage of low marginal rates for high income corporations. b. Taxes = 0.15($50,000) + 0.25($25,000) + 0.34($25,000) + 0.39($235,000) = $113,900 Average tax rate = $113,900 / $335,000 = 34% The marginal tax rate on the next dollar of income is 34 percent. For corporate taxable income levels of $335,000 to $10 million, average tax rates are equal to marginal tax rates. Taxes = 0.34($10,000,000) + 0.35($5,000,000) + 0.38($3,333,333)= $6,416,667 Average tax rate = $6,416,667 / $18,333,334 = 35% The marginal tax rate on the next dollar of income is 35 percent. For corporate taxable income levels over $18,333,334, average tax rates are again equal to marginal tax rates. c. Taxes = 0.34($200,000) = $68,000 $68,000 = 0.15($50,000) + 0.25($25,000) + 0.34($25,000) + X($100,000); X($100,000) = $68,000 – 22,250 X = $45,750 / $100,000 X = 45.75% 25. Balance sheet as of Dec. 31, 2008 Cash $3,792 Accounts payable $3,984 Accounts receivable 5,021 Notes payable 732 Inventory 8,927 Current liabilities $4,716 Current assets $17,740 Long-term debt $12,700 Net fixed assets $31,805 Owners' equity 32,129 Total assets $49,545 Total liab. & equity $49,545 Balance sheet as of Dec. 31, 2009 Cash $4,041 Accounts payable $4,025 Accounts receivable 5,892 Notes payable 717 Inventory 9,555 Current liabilities $4,742 Current assets $19,488 Long-term debt $15,435 Net fixed assets $33,921 Owners' equity 33,232 Total assets $53,409 Total liab. & equity $53,409
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
B-14 SOLUTIONS 2008 Income Statement 2009 Income Statement Sales $7,233.00 Sales $8,085.00 COGS 2,487.00 COGS 2,942.00 Other expenses 591.00 Other expenses 515.00 Depreciation 1,038.00 Depreciation 1,085.00 EBIT $3,117.00 EBIT $3,543.00 Interest 485.00 Interest 579.00 EBT $2,632.00 EBT $2,964.00 Taxes (34%) 894.88 Taxes (34%) 1,007.76 Net income $1,737.12 Net income $1,956.24 Dividends $882.00 Dividends $1,011.00 Additions to RE 855.12 Additions to RE 945.24 26. OCF = EBIT + Depreciation – Taxes = $3,543 + 1,085 – 1,007.76 = $3,620.24 Change in NWC = NWC end – NWC beg = (CA – CL) end – (CA – CL) beg = ($19,488 – 4,742) – ($17,740 – 4,716) = $1,722 Net capital spending = NFA end – NFA beg + Depreciation = $33,921 – 31,805 + 1,085 = $3,201 Cash flow from assets = OCF – Change in NWC – Net capital spending
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 10/31/2011 for the course FIN 3403 at University of Florida.

Page1 / 4

Business Finance - CHAPTER 2 B-13 24 a The tax bubble causes average tax rates to catch up to marginal tax rates thus eliminating the tax advantage

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online