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Finance Essay

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(2-6)
Statement of Retained Earnings
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 - New Balance retained earning
Dividend = $780 million + $50 million - $810 million= $830 million - $810 million= $20 million
(2-7)
Corporate Tax Liability
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) 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?
After-tax income = 365,000-50,000+4500=319,500
Talley’s Tax Liability:
Taxable Operating Income --- $365,000
Taxable Interest --- ($50,000)
Taxable Dividend $4,500...
Tax = $22,250 + ($319,500 - $100,000)(0.39) = $22,250 + $85,605 = $107,855.
Tax = $107,855
After-tax income:
Taxable income $319,500
Taxes -$107,855
Plus Non-taxable dividends $10,500
Net income $222,145
Non-taxable dividends: $15,000 x 0.7 = $10,500.
marginal tax rate is 39%.
average tax rate is $107,855/$319,500 = 33.76%.
(2-9)
Corporate After-Tax Yield
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%. Shrieves’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.
A T & T Bonds
10,000 X 7.5%= $750
$750 X .35 = $262.50
$750 -262.50 = $487.50
$487.50/$10,000=4.875%
After tax rates=4.875%

A T & T Preferred Stock...

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