Exercises (amounts in $ millions)
U.S. tax before FTC = 5000 x .35 =
FTC = min(1000 x .35, 280) =
U.S. tax after FTC =
Worldwide tax = 1470 + 280 =
U.S. tax before FTC =
FTC = min(1000 x .35, 200) =
U.S. tax after FTC
The ABC Corporation might set up the joint venture with another company as a flow through
entity (e.g. partnership) or C Corporation. The big advantage of a partnership as a flow-through
entity is that the losses expected from joint venture can offset
10 million. Neither subsidiary is consolidated tax consolidation requires 80% or more ownership.
DQ4. In Millers world, debt must pay a higher pretax return than equity because interest
income is taxed more severely at
Tax Planning Problems
In the US., municipalities are subject to tax on unrelated business income at corporate
tax rates. Moreover, municipalities can undertake profit-making ventures financed by tax-exempt
bonds. When the before-tax rate of r
Price willing to pay for the corporate bond is $1,000 (the face value). The bond promises a
coupon of 6% and the taxpayer requires a pretax rate of return of 6% as well. More formally
Price = present value of the coupon payments +
Municipalities can undertake some profit-making ventures that are tax advantageous for them. They can
issue tax-exempt securities to finance profit-making venture. The interest cost on those tax-exempt
securities is deductible from before tax profit
Firm 1: Expected marginal tax rate, E(mtr) = .50(40%) + .50(0%) = 20%
Firm 2: E(mtr) = .50(40%) + .50(0%) = 20%.
For firm 1, while the expected taxable income is a loss of $500,00 there is a 50%
chance of its mtr being 40% and a 50% chance of
Chapter 2 Answers:
a. If receive now and invest after-tax proceeds, the taxpayer will accumulate by the end
of next period
If defer receipt then after-tax will have
$110,000(1-t) = $75,9
DILUTIVE SECURITIES AND EARNINGS PER SHARE
IFRS questions are available at the end of this chapter.
TAKE HOME EXAM
Answer a total of 3 questions, one from each pair of 2.
The answers will be word processed on a single page, or two.
And e-mailed to me at [email protected]
By no later than noon on Monday September, 21
1 A. Corpor
Answer three questions: one from 1A or 1B, one from 2A or 2B. and question 3.
Bring word-process answers to in-class exam on Monday10/19
1.A. Corporation is a closely held C corporation. All of the stock is owned by 2 S/Hs. The c
Introduction to Federal Taxation and
Understanding the Federal Tax Law
TRUE-FALSE QUESTIONSCHAPTER 1
The majority of dollars collected by the U.S. government come by way of corporate taxation.
Prior to the Sixteenth Amendment direct
SWOT Threats 1. Threat 1 (description of threat 1) I would like to use competition a. How is this threat related to serving customers needs? b. How can the firm prevent this threat from limiting its capabilities in the shortand long- term? 2. Threat 2 (de