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Week 2 Homework

# Week 2 Homework - Week 2 Homework 3-2 The four financial...

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Week 2 Homework 3-2 The four financial statements contained in most annual reports are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. 3-3 No, because the \$20 million of retained earnings would probably not be held as cash. The retained earnings figure represents the reinvestment of earnings by the firm. Consequently, the \$20 million would be an investment in all of the firm’s assets. 3-7 Income \$365,000 Less Interest deduction (50,000) Plus: Dividends receiveda 4,500 Taxable income \$319,500 aFor a corporation, 70% of dividends received are excluded from taxes; therefore, taxable dividends are calculated as \$15,000(1 - 0.70) = \$4,500. Tax = \$22,250 + (\$319,500 - \$100,000)(0.39) = \$22,250 + \$85,605 = \$107,855. After-tax income: Taxable income \$319,500 Taxes (107,855) Plus Non-taxable dividends receivedb 10,500 Net income \$222,145 bNon-taxable dividends are calculated as \$15,000 x 0.7 = \$10,500. The company’s marginal tax rate is 39 percent. The company’s average tax rate is \$107,855/\$319,500 = 33.76%. 3-9 A-T yield on FLA bond = 5%.

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Week 2 Homework - Week 2 Homework 3-2 The four financial...

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