pg15 - d. How much explicit tax would she have paid on the...

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d. How much explicit tax would she have paid on the Surething, Inc. bond? Since Melinda’s marginal tax rate is 25 percent, she would have paid $4,000 of explicit tax (i.e., 25% x $16,000) on the interest earned from the Surething, Inc. bond. e. What is her after-tax rate of return on the Surething, Inc. bond? Her after-tax income from the Surething, Inc. bond would be $12,000 ($16,000 interest income - $4,000 tax). Thus, her after-tax return from the Surething, Inc. bond would be 6 percent (after- tax income of $12,000 divided by her $200,000 investment). (45) [LO3,LO4 PLANNING] Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest? Hugh’s after tax rate of return on the tax exempt City of Heflin bond is 6 percent. The Surething bond pays taxable interest of 9 percent.
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This note was uploaded on 04/04/2012 for the course ACCT 26373 taught by Professor Hall during the Spring '10 term at Texas State.

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