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Unformatted text preview: es? LG6 1–7 Marginal corporate tax rates Using the corporate tax rate schedule given in
Table 1.4, perform the following:
a. Find the marginal tax rate for the following levels of corporate earnings
before taxes: $15,000; $60,000; $90,000; $200,000; $400,000; $1 million;
and $20 million. CHAPTER 1 The Role and Environment of Managerial Finance 37 b. Plot the marginal tax rates (measured on the y axis) against the pretax
income levels (measured on the x axis). Explain the relationship between
LG6 1–8 Interest versus dividend income During the year just ended, Shering
Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from interest on bonds it
held in Zig Manufacturing and received $20,000 in income from dividends on
its 5% common stock holding in Tank Industries, Inc. Shering is in the 40%
tax bracket and is eligible for a 70% dividend exclusion on its Tank Industries
a. Calculate the firm’s tax on its operating earnings only.
b. Find the tax and the after-tax amount attributable to the interest income
from Zig Manufacturing bonds.
c. Find the tax and the after-tax amount attributable to the dividend income
from the Tank Industries, Inc., common stock.
d. Compare, contrast, and discuss the after-tax amounts resulting from the
interest income and dividend income calculated in parts b and c.
e. What is the firm’s total tax liability for the year? LG6 1–9 Interest versus dividend expense Michaels Corporation expects earnings before
interest and taxes to be $40,000 for this period. Assuming an ordinary tax rate
of 40%, compute the firm’s earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any)
under the following conditions:
a. The firm pays $10,000 in interest.
b. The firm pays $10,000 in preferred stock dividends. LG6 1–10 Capital gains taxes Perkins Manufacturing is considering the sale of two nondepreciable assets, X a...
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- Fall '13