Progressive Tax and Net Income
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? ANSWER: Net Income $3 Million EBIT $6 Million Divided by 0.6 Less IBT $5 Million Income before Taxes $5 Million Interest 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? ANSWER: Income 365,000 Less Interest 50,000 Dividends Recv'd 15,000 315,000 % of Taxable 0.3 Plus: Dividends received 4,500 Taxable Dividends 4500 Taxable income 319500 % of Non-taxable 0.7 Tax Amount = $22,250 Non-taxable Dividends 10500 Taxable Income Range 100,000 % on the Excess Over the Base 0.39 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?
ANSWER: EBIT 750,000 EBIT-Interest=EBT-Taxes=NI INTEREST 0 EBT 750,000 Taxes 40% 300,000 NET INCOME 450,000 NCF = NI + Depreciation & Amortization DEPRECIATION 200,000 NET CASH FLOW (NCF)
(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? ANSWER: Net Income $3 Million EBIT $6 Million Divided by 0.6 Less IBT $5 Million Income before Taxes $5 Million Interest 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? ANSWER: Income 365,000 Less Interest 50,000 Dividends Recv'd 15,000 315,000 % of Taxable 0.3 Plus: Dividends received 4,500 Taxable Dividends 4500 Taxable income 319500 % of Non-taxable 0.7 Tax Amount = $22,250 Non-taxable Dividends 10500 Taxable Income Range 100,000 % on the Excess Over the Base 0.39 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?
ANSWER: EBIT 750,000 EBIT-Interest=EBT-Taxes=NI INTEREST 0 EBT 750,000 Taxes 40% 300,000 NET INCOME 450,000 NCF = NI + Depreciation & Amortization DEPRECIATION 200,000 NET CASH FLOW (NCF)