Description

FIN 515 Week 1 Homework Problem Set 1

2-6) Statement of Retained Earnings

In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?

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 is the firm’s taxable income? What-is it marginal tax rate? What is its tax expense? What is its after-tax income? What-is the average tax rate based on taxable income?

2-8) Corporate Tax Liability (additional)

The Wendt Corporation had $10.5 million of taxable income.

a. What is the company’s federal income tax bill for the year?

b. Assume the firm receives an additional 1$ million of interest income from some bonds it owns. What is the tax on this interest income?

c. Now assume that Wendt does not receive the interest income but does receive an additional $1 million as dividends on some stock it owns. What is the tax on this dividend income?

FIN 515 Week 1 Homework Problem Set 2

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? (Brigham 79)

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.
1) What are the firm’s income tax liability and its after-tax income?
2) What are the company’s marginal and average tax rates on taxable income? (Brigham 79)

2-8 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) What is the net operating profit after taxes (NOPAT) for 2010?

b) What are the amounts of net operating working capital for both years?

c) What are the amounts of total net operating capital for both years?

d) What is the free cash flow for 2010?

e) What is the ROIC for 2010?

f) How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.)

FIN 515 Week 1 Homework