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?
780 Previous retained earnings
50 Net Income
810 Retained earnings
20 million in dividends was paid 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 are the firm’s income tax liability and its after-tax income? What are the company’s marginal and average tax rates on table income?
LESS: Interest Charges(50,000)
ADD: Dividends received 4,500 (30% of 15,000)
Taxable income: 319,500
*In addition, 70% of dividends received are excluded from taxes 15,000 (1-.7) = $4,500
Tax22,250 + 0.39 (319,500 – 100,000)
22,250 + 85,605 = 107,855
After Tax Income:
LESS: Taxes (107,855)
ADD: Non-taxable dividends received 10,500
*Non-taxable dividends 15,000 x 0.7 = $10,500
Marginal tax rate is 39%
Average is 107,855/319,500 = 33.76%, rounded at 33.8%
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%. Shrieve’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.