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Graded Homework 1 Solution

Graded Homework 1 Solution - Solutions to Graded Homework 1...

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Solutions to Graded Homework 1 Problem 1: Cash sales 225,000 Municipal bond interest income 0 Cost of goods sold (45,000) Cash payments for utilities (3,500) Cash payments for rent (18,000) Tax depreciation (40,000) Political contribution 0 OID income 823 a Taxable Income 119,323 Tax due 41,763 b Daniel’s after tax cash flow: Cash sales 225,000 Interest from City of Austin bonds 3,000 Cost of goods sold (45,000) Cash payments for utilities (3,500) Cash payments for rent (18,000) Tax depreciation 0 Political contribution (1,000) OID Income 0 Tax Payment (41,763) After Tax Cash Flow 118,737 a (15,670*.05=783.5; 15,670+783.5=16,423.5; 16,423,5*.05=823). b 119,323.35=41,763
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Problem 2 1) Corporate bond: Assuming the interest is received at the end of the six months, the bond accrues the following after tax earnings The bond earns $75,000*.065*.5=2,437.5. After taxes she has 2,437.5*(1-.33)=1,633. Or calculate the after tax return as .065*.5*(1-.33)=.0218. 2) Municipal bond: The bond earns $75,000*.04*.5=1,500. Since the interest is tax free after taxes she has $1,500. Or calculate the after tax return as .04*.5=.02. 3) The stock earns $500*(1-.15)=425 plus $75,000*.03*.5*(1-.33)=754. 425+754=1,179.
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