Fi 515 Week 1 Essay

511 words - 3 pages

Lieka M Crump
Managerial Finance FI515

Homework Assignment Week 1

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 paid = Previous Balance retained earning + net income - Recent retained earning Dividend = $780 million + $50 million - $810 million= $830 million - $810 million= $20 million dividends paid.

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) ...view middle of the document...

70) which =
Total taxable income$ 319,500

The marginal rate for this company is 39% (found on page 71)
The non-taxable dividends are:
$15,000 * 0.7 = $ 10,500
The tax is:
Tax Liability =$ 22,250 + (319,500 ± 100,000)*0.39 = $ 107,855
After Tax-income:
Taxable income $ 319,500 Taxable ($ 107855)
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 securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield5% (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 returns on all three securities.
Invest = $ 10,000
AT&T bonds = 7.5%
Florida muni bonds = 5%
AT&T preferred stock = 6 %
Corporate tax rate = 35%

After Taxes
AT&T bond = 7.5% * 10000 = 0.075 * 10000 = $ 750
Taxes = 750 * 0.35 = $ 262.50
$750 -262.50 = $487.50
Yield AT&T bond = 487.50 / 10,000 = 0.04875 *100% = 4.875 %
Yield AT&T bond = 4.875 %

AT&T preferred stock = 6% * 10000 = 0.06 * 10000 = $600
Tax exemption 70% = 600 * 0.7 = $ 420
Taxable = $600 - $420 = $ 180
Taxes = $ 180 * 0.35 = $ 63 in taxes
$ 600 - $ 63 = $ 537
Yield = 537 / 10000 = 0.0537 * 100% = 5.37%
Yield AT&T preferred stock = 5.37 %

Florida muni bonds = 5%Muni bonds =10000 * 0.05 = $500
There are not taxable, so no taxes deduction.
Yield = $500 / 10000 = 0.05 * 100 % = 5 %
Yield Florida muni bonds = 5%

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