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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...

• Submitted by: leshia2006
• on October 7, 2012
• Length: 406 words
• Views: 341
• Popularity Rank: 292964
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