assignment 1
1) Liability comparisons Merideth Harper has invested?
$25,000 in Southwest Development Company.
The firm has recently declared bankruptcy and has? $60,000 in unpaid
debts. Explain the nature of? payments,
if? any, by Ms. Harper in each of the following situations.
a. Southwest
Development Company is a sole proprietorship owned by Ms. Harper.
b. Southwest Development Company is a? 50-50 partnership of
Ms. Harper and Christopher Black.
c. Southwest Development Company is a corporation.
a. If Southwest Development Company is a sole proprietorship
owned by Ms.? Harper,:???(Select the best answer? below.)
A. Ms. Harper has unlimited? liability, which means
creditors can claim against her personal assets.
B. Ms. Harper has limited? liability, which is the amount
of? $60,000 in unpaid debts.
C. Ms. Harper has limited? liability, which guarantees that
she cannot lose more than the? $25,000 she invested.
D. Ms. Harper has unlimited? liability, which means
creditors can only claim against the? $25,000 she invested.
b. If Southwest Development Company is a? 50-50 partnership
of Ms. Harper and Christopher? Black,:???(Select the best answer? below.)
A. Ms. Harper has unlimited? liability, which means
creditors can only claim against the? $25,000 she invested.
B. Ms. Harper has unlimited? liability, which means
creditors can claim against her personal assets.
C. Ms. Harper has limited? liability, which guarantees that
she cannot lose more than the? $25,000 she invested.
D. Ms. Harper has limited? liability, which is? $30,000, or
half of the? $60,000 in unpaid debts.
c. If Southwest
Development Company is a? corporation,:???(Select the best answer? below.)
A. Ms. Harper has limited? liability, which guarantees that
she cannot lose more than the? $25,000 she invested.
B. Ms. Harper has unlimited? liability, which means
creditors can only claim against the? $25,000 she invested.
C. Ms. Harper has unlimited? liability, which means
creditors can claim against her personal assets.
D. Ms. Harper has limited? liability, which is the amount
of? $60,000 in unpaid debts.
2) As chief financial? officer, it is your responsibility to
weigh financial pros and cons of the many investment opportunities developed by
your? company’s research and development division. You are currently evaluating
two competing? 15-year projects that differ in several ways. Relative to your?
firm’s current? EPS, the first project is expected to generate? above-average
EPS during the first 5? years, average EPS during the second 5? years,and then?
below-average EPS in the last 5 years. The second project is expected to
generate? below-average EPS during the first 5? years, average EPS in the
second 5? years, and then? well-above-average EPS in the last 5 years.
Is the choice obvious if you expect that the second
investment will result in a larger overall earnings? increase? Given the goal
of the? firm, what issues will you consider before making a final? decision?
Is the choice obvious if you expect that the second
investment will result in a larger overall earnings? increase????(Select the
best answer? below.)
A. No. The firm cannot earn a return on funds it? receives,
therefore the receipt of? funds, whether sooner or? later, will not affect the
choice.
B. Yes. The firm can earn a return on funds it? receives,
therefore the receipt of funds is preferred later rather than sooner. The first
project generates a? below-average return in the last 5? years, while the
second project generates ? well-above-average returns in the same period.
C. Yes. The firm can earn a return on funds it? receives,
therefore, the project that earns the larger overall earnings increase is the
best choice.
D. No. The firm can earn a return on funds it? receives,
therefore the receipt of funds is preferred sooner rather than later. The first
project generates an? above-average return in the first 5? years, while the
second project generates? below-average returns in the same period.
Issues you should consider before making a final decision?
are:??(Select the best answer? below.)
A. ?timing, cash? flows, and stakeholders.
B. ?timing, risk, and stakeholders.
C. ?timing, cash? flows, and risk.
D. cash? flows, risk, and stakeholders.
3) Identifying agency? problems, costs, and resolutions
Explain why each of the following situations is an agency problem and what
costs to the firm might result from it.
Suggest how the problem might be dealt with short of firing the?
individual(s) involved.
a. The front desk receptionist routinely takes an extra 20
minutes of lunch time to run personal errands.
b. Division managers are padding cost estimates so as to
show? short-term efficiency gains when the costs come in lower than the
estimates.
c. The? firm’s chief executive officer has had secret talks
with a competitor about the possibility of a merger in which she would become
the CEO of the combined firms.
d. A branch manager lays off experienced? full-time
employees and staffs customer service positions with? part-time or temporary
workers to lower employment costs and raise this? year’s branch profit. The? manager’s bonus is based on
profitability.
a. The front desk receptionist routinely takes an extra 20
minutes of lunch time to run personal errands.
Which of the following statements correctly identifies the cost and
possible solution for the agency problem in this? case????(Choose all correct?
responses.)
A. The front desk receptionist is being compensated for
unproductive time.
B. The company could install a time clock that would result
in either? (1) her returning on time or? (2) reducing the cost to the firm.
C. The management could bring the situation to the attention
of the receptionist. The extra emphasis on meeting her duties may be all that
is required.
D. The company should do nothing. Any attempt to solve the
problem would likely create an unhappy employee and only make the situation
worse.
b. Division managers are padding cost estimates so as to
show? short-term efficiency gains when the costs come in lower than the
estimates. Which of the following
statements correctly identifies the cost and possible solution for the agency
problem in this? case????(Choose all correct? responses.)
A. One agency cost is that money budgeted to cover the
project proposal is not available to fund other projects that may help to
increase shareholder wealth.
B. There is no agency cost in this problem.
C. One way to reduce the agency cost is to base the reward
system on how close the? employee’s estimates come to the actual cost rather
than having them come in below cost.
D. A reward system based on increasing shareholder wealth
might motivate the division managers to make more accurate estimates in order
to be able to take on additional profitable projects.
c. The? firm’s chief executive officer has had secret talks
with a competitor about the possibility of a merger in which she would become
the CEO of the combined firms. Which of
the following statements correctly identifies the cost and possible solution
for the agency problem in this? case????(Choose all correct? responses.)
A. One agency cost is that the CEO may negotiate a deal with
the merging competitor that is extremely beneficial to herself at the expense
of selling the firm for less than its fair market value.
B. A good way to reduce the loss of shareholder wealth would
be to open the firm up for purchase bids from other firms once the manager
makes it known that the firm is willing to merge.
C. An open bidding process may encourage other firms to
offer a price closer to the fair market value of the firm.
D. There is no agency cost. Secrecy must be maintained in
order to get the best possible price for the firm.
d.A branch manager lays off experienced? full-time employees
and staffs customer service positions with? part-time or temporary workers to
lower employment costs and raise this? year’s branch profit. The? manager’s bonus is based on
profitability. Which of the following
statements correctly identifies the cost and possible solution for the agency
problem in this? case????(Choose all correct? responses.)
A. Generally? part-time or temporary workers are not as
productive as? full-time employees. These workers have not been on the job as
long to increase their work efficiency.
B. This manager is getting rid of good employees to
increase? short-term profits.
C. One approach to reducing the problem would be to give the
manager performance share if certain stated goals are met.
D. Implementing a stock incentive plan tying management
compensation to share price would also encourage the manager to retain quality
employees.
Question is complete.
4) What does it mean to say that individuals as a group are
net suppliers of funds for financial? institutions? What do you think the
consequences might be in financial markets if individuals consumed more of
their incomes and thereby reduced the supply of funds available to financial?
institutions?
What does it mean to say that individuals as a group are net
suppliers of funds for financial? institutions????(Select the best answer? below.)
A. Individuals, as a? whole, spend less than they make. The excess is? invested, making it available
for businesses and goverments.
B. ?Individuals, as a? whole, spend more than they
make. The excess is provided for by
financial institutions.
C. ?Individuals, as a? whole, spend more than they
make. The excess is provided for by
businesses.
D. ?Individuals, as a? whole, spend less than they
make. The amount that they spend is made
available to businesses through financial institutions.
What do you think the consequences might be in financial
markets if individuals consumed more of their incomes and thereby reduced the
supply of funds available to financial? institutions????(Select the best
answers from the? drop-down menus.)
If individuals consume? more, ____________ dollars will be
available for investment. This would
____________ the amount of money available for new projects
and drive ____ the required return? (i.e., required return of investors to buy?
bonds). Over? time, employment,?
salaries, and gross domestic product would _________.
5) Corporate taxes Tantor? Supply, Inc., is a small
corporation acting as the exclusive distributor of a major line of sporting
goods. During 2013 the firm earned $ 94 comma 600$94,600 before taxes.
a. Calculate the? firm’s tax liability using the corporate
tax rate schedule given in the following Table
|
Corporate Tax Rate Schedule |
|||||||
|
Tax calculation |
|||||||
|
Range of taxable income |
Base tax |
plus+ |
?(Marginal ratetimes×amount over base? bracket) |
||||
|
$ 0 to |
$50,000 |
$0 |
plus+ |
?(15?% |
× |
amount over |
$0?) |
|
50,000 to |
75,000 |
7,500 |
plus+ |
?(25?% |
× |
amount over |
50,000?) |
|
75,000 to |
100,000 |
13,750 |
plus+ |
?(34?% |
× |
amount over |
75,000?) |
|
100,000 to |
335,000 |
22,250 |
plus+ |
?(39?% |
× |
amount over |
100,000?) |
|
335,000 to |
10,000,000 |
113,900 |
plus+ |
?(34?% |
× |
amount over |
335,000?) |
|
10,000,000 to |
15,000,000 |
3,400,000 |
plus+ |
?(35?% |
× |
amount over |
10,000,000?) |
|
15,000,000 to |
18,333,333 |
5,150,000 |
plus+ |
?(38?% |
× |
amount over |
15,000,000?) |
|
Over8,333,333 |
6,416,667 |
plus+ |
?(35?% |
× |
amount over |
18,333,333?) |
b. How much are Tantor? Supply’s 2013? after-tax earnings?
c. What is the? firm’s average tax? rate, based on your
findings in part ?(a?)??
d. What is the? firm’s marginal tax? rate, based on your
findings in part ?(a?)??
a. The? firm’s tax liability is ?$________. ?(Round to the nearest? dollar.)
b. The? firm’s after-tax earnings is ?$______. ?(Round to the nearest? dollar.)
c. The? firm’s average tax rate is ______% ?(Round to one decimal? place.)
d. The? firm’s marginal tax rate is ___?%. ?(Round to the nearest? integer.)
6) Average corporate tax rates Using the corporate tax rate
schedule given here perform the? following:
|
Corporate Tax Rate Schedule |
|||||||
|
Tax calculation |
|||||||
|
Range of taxable income |
Base tax |
plus+ |
?(Marginal ratetimes×amount over base? bracket) |
||||
|
$0 to |
$50,000 |
$0 |
plus+ |
?(15?% |
× |
amount over |
$0?) |
|
50,000 to |
75,000 |
7,500 |
plus+ |
?(25?% |
× |
amount over |
50,000?) |
|
75,000 to |
100,000 |
13,750 |
plus+ |
?(34?% |
× |
amount over |
75,000?) |
|
100,000 to |
335,000 |
22,250 |
plus+ |
?(39?% |
× |
amount over |
100,000?) |
|
335,000 to |
10,000,000 |
113,900 |
plus+ |
?(34?% |
× |
amount over |
335,000?) |
|
10,000,000 to |
15,000,000 |
3,400,000 |
plus+ |
?(35?% |
× |
amount over |
10,000,000?) |
|
15,000,000 to |
18,333,333 |
5,150,000 |
plus+ |
?(38?% |
× |
amount over |
15,000,000?) |
|
Over18,333,333 |
6,416,667 |
plus+ |
?(35?% |
× |
amount over |
18,333,333?) |
a. Calculate the tax? liability, after-tax? earnings, and
average tax rates for the following levels of corporate earnings before? taxes:
$10,500?; $79,500?; $298,000?; $505,000?; $1.1 ?million; $9.1 ?million; and
$20.5 million.
b. Plot the average tax rates? (measured on the y? axis)
against the pretax income levels? (measured on the x? axis). What
generalization can be made concerning the relationship between these?
variables?
a. Find the marginal tax rate for the following levels of
corporate earnings before? taxes: $10,500?; $79,500?; $298,000?; $505,000?;
$1,100,000?; $9.1 ?million; and $20.5 million.
The tax liability for earnings before taxes of $10,500 is _________. ?(Round to the nearest? dollar.)
The? after-tax earnings on $10,500 are _______. ?(Round to the nearest? dollar.)
The average tax rate for the $10,500 in pretax earnings is ______ ?(Round to one decimal? place.)
The tax liability for earnings before taxes of $79,500 is ______. ?(Round to the nearest? dollar.)
The? after-tax earnings on $79,500 are _________. ?(Round to the nearest? dollar.)
The average tax rate for the $79,500 in pretax earnings is _______ ?(Round to one decimal? place.)
The tax liability for earnings before taxes of $298,000 is ________. ?(Round to the nearest? dollar.)
The? after-tax earnings on $298,000 are ___________. ?(Round to the nearest? dollar.)
The average tax rate for the $298,000 in pretax earnings is _____ ?(Round to one decimal? place.)
The tax liability for earnings before taxes of $505,000 is ________. ?(Round to the nearest? dollar.)
The? after-tax earnings on $505,000 are ________. ?(Round to the nearest? dollar.)
The average tax rate for the $505,000 in pretax earnings is _______ ?(Round to one decimal? place.)
The tax liability for earnings before taxes of $1.1 million
is ________. ?(Round to the nearest?
dollar.)
The? after-tax earnings on $1.1 million are ___________. ?(Round to the nearest? dollar.)
The average tax rate for the $ 1.1 million in pretax
earnings is _____ ?(Round to one
decimal? place.)
The tax liability for earnings before taxes of $9.1 million
is _________. ?(Round to the nearest?
dollar.)
The? after-tax earnings on $9.1 million are ?$_______. ?(Round to the nearest? dollar.)
Question is complete. Tap on the red indicators to see
incorrect answers.
7) Marginal corporate tax rates Using the corporate tax rate
schedule given here perform the?
following:
|
Corporate Tax Rate Schedule |
|||||||
|
Tax calculation |
|||||||
|
Range of taxable income |
Base tax |
plus+ |
?(Marginal ratetimes×amount over base? bracket) |
||||
|
$0 to |
$50,000 |
$0 |
plus+ |
?(15?% |
× |
amount over |
$0?) |
|
50,000 to |
75,000 |
7,500 |
plus+ |
?(25?% |
× |
amount over |
50,000?) |
|
75,000 to |
100,000 |
13,750 |
plus+ |
?(34?% |
× |
amount over |
75,000?) |
|
100,000 to |
335,000 |
22,250 |
plus+ |
?(39?% |
× |
amount over |
100,000?) |
|
335,000 to |
10,000,000 |
113,900 |
plus+ |
?(34?% |
× |
amount over |
335,000?) |
|
10,000,000 to |
15,000,000 |
3,400,000 |
plus+ |
?(35?% |
× |
amount over |
10,000,000?) |
|
15,000,000 to |
18,333,333 |
5,150,000 |
plus+ |
?(38?% |
× |
amount over |
15,000,000?) |
|
Over18,333,333 |
6,416,667 |
plus+ |
?(35?% |
× |
amount over |
18,333,333?) |
a. Find the marginal tax rate for the following levels of
corporate earnings before? taxes: $15,500?; $58,700?; $88,500?; $195,000?;
$397,000?; $1.5 ?million; and $20.1 million.
b. Plot the marginal tax rates? (measured on the y? axis)
against the pretax income levels? (measured on the x? axis). Explain the
relationship between these variables.
a. The marginal tax rate for earnings before taxes of
$15,500 is ________?%. ?(Round to the
nearest? integer.)
8) Interest versus dividend income During the year just?
ended, Shering? Distributors, Inc., had pretax earnings from operations of
$482,000. In? addition, during the year it received $30,000 in income from
interest on bonds it held in Zig Manufacturing and received $30,000 in income
from dividends on its 5% common stock holding in Tank? Industries, Inc. Shering
is in the 40% tax bracket and is eligible for a 70% dividend exclusion on its
Tank Industries stock.
a. Calculate the? firm’s tax on its operating earnings only.
b. Find the tax and the? after-tax amount attributable to
the interest income from Zig Manufacturing bonds.
c. Find the tax and the? after-tax amount attributable to
the dividend income from the Tank? Industries, Inc., common stock.
d.? Compare, contrast, and discuss the? after-tax amounts
resulting from the interest income and dividend income calculated in parts b.
and c.
e. What is the? firm’s total tax liability for the? year?
a. The tax on operating earnings is ?$__________. ?(Round to the nearest? dollar.)
b. Complete the table below to compute the tax and the?
after-tax amount attributable to the interest? income:???(Round to the nearest?
dollar.)
|
Interest Income |
||
|
Before-tax amount |
$ |
|
|
Less: Applicable exclusion |
||
|
Taxable amount |
$ |
|
|
Tax (40%) |
||
|
After-tax amount |
$ |
9) Interest versus dividend expense Michaels Corporation
expects earnings before interest and taxes to be $48,000 for this period.
Assuming an ordinary tax rate of 34%?, 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 $11,600 in interest.
b. The firm pays $11,600 in preferred stock dividends.
a. Complete the fragment of Michaels? Corporation’s income
statement below to compute the? firm’s earnings after taxes and earnings
available for common stockholders under condition ?(a?).???(Round to the
nearest? dollar.)
|
EBIT |
$ |
|
|
Less: Interest expense |
||
|
Earnings before taxes |
$ |
|
|
Less: Taxes (34%) |
||
|
Earnings after taxes |
$ |
|
|
Less: Preferred dividends |
||
|
Earnings available for common stockholders |
$ |
b. Complete the fragment of Michaels? Corporation’s income
statement below to compute the? firm’s earnings after taxes and earnings
available for common stockholders under condition ?(b?).???(Round to the
nearest? dollar.)
|
EBIT |
$ |
|
|
Less: Interest expense |
||
|
Earnings before taxes |
$ |
|
|
Less: Taxes (34%) |
||
|
Earnings after taxes |
$ |
|
|
Less: Preferred dividends |
||
|
Earnings available for common stockholders |
$ |
10) Capital gains taxes?Perkins Manufacturing is considering
the sale of two non depreciable? assets, X and Y. Asset X was purchased for
$1,990 and will be sold today for $2,250. Asset Y was purchased for $29,100 and
will be sold today for $34,900. The firm is subject to a 40% tax rate on
capital gains.
a. Calculate the amount of capital? gain, if? any, realized
on each of the assets.
b. Calculate the tax on the sale of each asset.
a. The capital gain realized on asset X is ?________. ?(Round to the nearest? dollar.)
The capital gain realized on asset Y is ?________. ?(Round to the nearest? dollar.)
b. The tax on the sale of asset X is ?_________. ?(Round to the nearest? dollar.)
The tax on the sale of asset Y is ________. ?(Round to the nearest? dollar.)
