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c. Which of these statements is more useful to the financial manager? Why? LG4 1–4 Identifying agency problems, costs, and resolutions Explain why each of the
following situations is an agency problem and what costs to the firm might
result from it. Suggest how the problem might be dealt with short of firing the
a. The front desk receptionist routinely takes an extra 20 minutes of lunch to
run personal errands.
b. Division managers are padding cost estimates in order to show short-term
efficiency gains when the costs come in lower than the estimates.
c. The firm’s chief executive officer has secret talks with a competitor about the
possibility of a merger in which (s)he would become the CEO of the combined firms.
d. A branch manager lays off experienced full-time employees and staffs customer service positions with part-time or temporary workers to lower
employment costs and raise this year’s branch profit. The manager’s bonus is
based on profitability. LG6 1–5 Corporate taxes Tantor Supply, Inc., is a small corporation acting as the exclusive distributor of a major line of sporting goods. During 2003 the firm earned
$92,500 before taxes.
a. Calculate the firm’s tax liability using the corporate tax rate schedule given in
b. How much are Tantor Supply’s 2003 after-tax earnings?
c. What was the firm’s average tax rate, based on your findings in part a?
d. What is the firm’s marginal tax rate, based on your findings in part a? LG6 1–6 Average corporate tax rates Using the corporate tax rate schedule given in
Table 1.4, perform the following:
a. Calculate the tax liability, after-tax earnings, and average tax rates for the
following levels of corporate earnings before taxes: $10,000; $80,000;
$300,000; $500,000; $1.5 million; $10 million; and $15 million.
b. Plot the average tax rates (measured on the y axis) against the pretax income
levels (measured on the x axis). What generalization can be made concerning
the relationship between these variabl...
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This document was uploaded on 01/19/2014.
- Fall '13