Principles of Finance 4 questions Due 8/28/18 12 pm EST
King Wave
4Questions.docx1
7
P2–2 Average corporate tax rates Using the corporate tax rate schedule given in Table 2.1 , 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 $20 million.
P2–5 Interest versus dividend expense Michaels Corporation expects earnings before interest and taxes to be $50,000 for the current period. Assuming an ordinary tax rate of 35%, 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 $12,000 in interest.
b. The firm pays $12,000 in preferred stock dividends.
P2–7 Capital gains taxes As part of its operations, Ferguson’s Plumbing has bought and sold several no depreciable capital assets. The purchase and sale prices for these assets are contained in the following table. Assuming that Ferguson’s pays a 40% capital gains tax, complete the table by filling in the last two columns.
|
Asset |
Sale price |
Purchase price |
Capital gain |
Tax |
|
A |
$ 3,400 |
$ 3,000 |
|
|
|
B |
12,000 |
12,000 |
|
|
|
C |
80,000 |
62,000 |
|
|
|
D |
45,000 |
41,000 |
|
|
|
E |
18,000 |
16,500 |
|
|
E3–1 You are a summer intern at the office of a local tax preparer. To test your basic knowledge of financial statements, your manager, who graduated from your alma mater 2 years ago, gives you the following list of accounts and asks you to prepare a simple income statement using those accounts.
|
Accounts |
($000,000) |
|
Depreciation |
25 |
|
General and administrative expenses |
22 |
|
Sales |
345 |
|
Sales expenses |
18 |
|
Cost of goods sold |
255 |
|
Lease expense |
4 |
|
Interest expense |
3 |
a. Arrange the accounts into a well-labeled income statement. Make sure you label and solve for gross profit, operating profit, and net profit before taxes.
b. Using a 35% tax rate, calculate taxes paid and net profit after taxes.
