Fi515 Homework 1
FI515
Homework#1
Ashley Wright
Problems pg 79:
2-6
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year?
Dividend = $780 million + $50 million - $810 million= $830 million - $810 million= $20 million
2-7
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s in- come tax liability and its after-tax income? What are the company’s marginal and average tax rates on taxable income?
Taxable operating income $ 365,000
Taxable interest ($ 50,000)
Taxable dividend received$ 4,500
15000*(1 - 0.70) Total taxable income$ 319,500 a. The marginal rate for this company is 39%
The non-taxable dividends are: $15,000 * 0.7 = $ 10,500
Tax Liability =$ 22,250 + (319,500 ± 100,000)*0.39 = $ 107,855After
Taxable income $ 319,500
Taxable ($ 107855) b) Non-taxable dividend received 15000*(0.70) $ 10,500
Net income $ 222,145
Average tax rate = Taxable interest income / Taxable operating income= 107855 / 319500 = 0.337574 *100%= 33.7574 = 33.76 %Average tax rate is 33.8 %
2-9
The Shrieves Corporation has $10,000 that it plans to invest in marketable secu- rities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporate tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities.
A) AT&T bond = 7.5% * 10,000 = 0.075 * 10000 = $ 750
Taxes = 750 * 0.35 = $ 262.50
$ 750 - 262.50 = $487.50
487.50 / 10,000 = 0.04875 *100% = 4.875 %
Yield AT&T bond = 4.875 %
Homework#1
Ashley Wright
Problems pg 79:
2-6
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year?
Dividend = $780 million + $50 million - $810 million= $830 million - $810 million= $20 million
2-7
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s in- come tax liability and its after-tax income? What are the company’s marginal and average tax rates on taxable income?
Taxable operating income $ 365,000
Taxable interest ($ 50,000)
Taxable dividend received$ 4,500
15000*(1 - 0.70) Total taxable income$ 319,500 a. The marginal rate for this company is 39%
The non-taxable dividends are: $15,000 * 0.7 = $ 10,500
Tax Liability =$ 22,250 + (319,500 ± 100,000)*0.39 = $ 107,855After
Taxable income $ 319,500
Taxable ($ 107855) b) Non-taxable dividend received 15000*(0.70) $ 10,500
Net income $ 222,145
Average tax rate = Taxable interest income / Taxable operating income= 107855 / 319500 = 0.337574 *100%= 33.7574 = 33.76 %Average tax rate is 33.8 %
2-9
The Shrieves Corporation has $10,000 that it plans to invest in marketable secu- rities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporate tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities.
A) AT&T bond = 7.5% * 10,000 = 0.075 * 10000 = $ 750
Taxes = 750 * 0.35 = $ 262.50
$ 750 - 262.50 = $487.50
487.50 / 10,000 = 0.04875 *100% = 4.875 %
Yield AT&T bond = 4.875 %