Submitted by: Submitted by taewetcha
Views: 152
Words: 893
Pages: 4
Category: Business and Industry
Date Submitted: 11/04/2012 07:03 PM
1. ANS: E
BT municipal bond yield | 8.80% |
BT bond yield | 11.75% |
BT preferred yield | 9.80% |
Tax rate | 38.00% |
Dividend exclusion % | 70.00% |
Since municipal bonds are exempt from federal taxes, its BT return = AT return
AT municipal bond yield 8.800%
AT bond yield = BT bond yield (1 – T)
AT bond yield = 7.285%
AT preferred yield = BT pref. return [1 – (1 – Div exclusion%)(T)]
AT preferred yield = 8.683%
Highest AT yield = 8.800%
TOP: (3-7) After-tax returns
2. ANS: A
Tax rate | 34% | |
| | | EBT After | Unused |
| | Carry-Forward | Forward | Carryable |
Year | Tax. Income | Used | Applied | Amount |
2004 | -$1,800,000 | $0 | $0 | $1,800,000 |
2005 | -$2,000,000 | $0 | $0 | $3,800,000 |
2006 | -$1,000,000 | $0 | $0 | $4,800,000 |
2007 | $1,200,000 | $1,200,000 | $0 | $3,600,000 |
2008 | $7,000,000 | $3,600,000 | $3,400,000 | $0 |
2008 Tax liability = EBT Tax rate
2008 Tax liability = $1,156,000
TOP: (3-7) Carry-back, carry-forward
3. ANS: C
Operating income | $360,000 |
Interest income | $50,000 |
Dividend income | $100,000 |
Dividend exclusion % | 70% |
Taxable income = Operating income + Interest income + Taxable dividend income
Taxable income = Operating income + Interest income + Dividend income
(1 – Dividend exclusion%)
Taxable income = $440,000
Taxable Income | Tax on Base of Bracket | % on Excess above Base |
$0 | $0 | 15% |
$50,000 | 7,500 | 25% |
$75,000 | 13,750 | 34% |
$100,000 | 22,250 | 39% |
$335,000 | 113,900 | 34% |
$10,000,000 | 3,400,000 | 35% |
$15,000,000 | 5,150,000 | 38% |
$18,333,333 | 6,416,667 | 35% |
Tax on base = | $113,900 |
Tax on excess base = | $35,700 |
Tax liability = | $149,600 |
TOP: (3-7) Corporate taxes
4. ANS: C
Total assets = Equity because zero debt | | | $375,000 |
Sales | | | | | $515,000 |
Net income | | | | $25,000 |...