# Progressive Tax and Net Income

Topics: Progressive tax, Taxation, Income tax Pages: 2 (294 words) Published: October 14, 2012
QUESTIONS:
(2-3)Little Books Inc. recently reported \$3m of net income. Its EBIT was \$6m, and its tax was 40%. What was
its interest expense?

Divided by0.6Less IBT\$5 Million
Income before Taxes\$5 MillionInterest Expense\$1 Million
**Interest Expense = \$1M**

(2-7)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?

Less Interest 50,000Dividends Recv'd15,000
315,000% of Taxable 0.3
Taxable income319500
% of Non-taxable 0.7
Tax Amount =\$22,250 Non-taxable Dividends10500
Taxable Income Range100,000
% on the Excess Over the Base0.39
Taxes = \$22,250 + 0.39 (\$319,500 - \$100,000)
22,250 +\$219,500 x 0.39
22,250 +\$85,605
Total Taxes = \$107,855

After-tax income\$211,645
Net Income\$222,145

Marginal tax rate=39%
Average tax rate=34%

(2-10)The Moore Corporation has operting income (EBIT) of \$750,000. The company's depreciation expense
is \$200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the company's net
income? What is its net cash flow?
INTEREST0
EBT750,000
Taxes40%
300,000
NET INCOME450,000NCF = NI + Depreciation & Amortization
DEPRECIATION200,000
NET CASH FLOW (NCF)650,000