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Statement of Retained Earnings

# Statement of Retained Earnings - • We assume that new...

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3. Statement of Retained Earnings Earnings are either paid to stockholders ( dividends ) or reinvested in the firm ( retained earnings ). 1

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Taxes Corporate income tax rates for 2005-2011 are: 2 Tax Rate \$0 \$50,000 15% \$50,001 \$75,000 25% \$75,001 \$100,000 34% \$100,001 \$335,000 39% \$335,001 \$10,000,000 34% \$10,000,001 \$15,000,000 35% \$15,000,001 \$18,333,333 38% \$18,333,334 + 35% Taxable Income
Taxes There are two ways to calculate taxes: Average Tax Rate Taxes ÷ Taxable Income Marginal Tax Rate Tax on an incremental dollar of earnings 3

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Taxes In making financial decisions, we are concerned with marginal taxes
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Unformatted text preview: . • We assume that new decisions affect incremental income and, therefore, incremental taxes are above and beyond what was already being paid in taxes by the firm. 4 Average vs. Marginal Tax Rates • In Finance, we are concerned with marginal tax rates, since we are usually evaluating new (incremental) cash flows. 5 Tax Rate Affected Earnings Taxes 0.15 \$50,000 \$7,500 0.25 \$25,000 \$6,250 0.34 \$25,000 \$8,500 0.39 \$100,000 \$39,000 \$200,000 \$61,250 Average Tax Rate = \$61,250 / \$200,000 = 30.63% Marginal Tax Rate = 39%...
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