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Practice problem 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?

Practice problem 2-7
The Talley Corporation had a taxable income of $365,000 from operations after all operating cost 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 income tax liability and its after-tax income? What are the company's marginal and average tax rates on taxable income?

Practice problem 2-9
The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. 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%. Shrieve'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.

Please show the details of your calculations/work in your answer to the problems.

Tax rates are computed using this table:

If a Corporation's It Pays this amount on Plus this % on the Average tax
Taxable Income is the base of the bracket excess over the base Rate at top
of bracket

Up to 50,000 $0 15% 15.0%
50,000- 75,000 $7,500 25 18.3
75,000-100,000 $13,750 34 22.3
100,000-335,000 $22,250 39 34.0
335,000-10,000,000 $113,900 34 34.0
10,000,000-15,000,000 $3,400,000 35 34.3
15,000,000-18,333,333 $5,150,000 38 35.0
Over 18,333,333 $6,416,667 35 35.0

 

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  • Category:- Basic Finance
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