# Fi515 Homework 1

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Fi515 Homework 1
FI515
Homework#1
Ashley Wright

Problems pg 79:
2-6
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 = \$780 million + \$50 million - \$810 million= \$830 million - \$810 million= \$20 million
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 in- come tax liability and its after-tax income? What are the company’s marginal and average tax rates on taxable income?

Taxable operating income \$ 365,000
Taxable interest (\$ 50,000)
15000*(1 - 0.70) Total taxable income\$ 319,500 a. The marginal rate for this company is 39%
The non-taxable dividends are: \$15,000 * 0.7 = \$ 10,500
Tax Liability =\$ 22,250 + (319,500 ± 100,000)*0.39 = \$ 107,855After

Taxable income \$ 319,500
Taxable (\$ 107855) b) Non-taxable dividend received 15000*(0.70) \$ 10,500
Net income \$ 222,145
Average tax rate = Taxable interest income / Taxable operating income= 107855 / 319500 = 0.337574 *100%= 33.7574 = 33.76 %Average tax rate is 33.8 %

2-9
The Shrieves Corporation has \$10,000 that it plans to invest in marketable secu- rities. 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) AT&T bond = 7.5% * 10,000 = 0.075 * 10000 = \$ 750
Taxes = 750 * 0.35 = \$ 262.50
\$ 750 - 262.50 = \$487.50
487.50 / 10,000 = 0.04875 *100% = 4.875 %
Yield AT&T bond = 4.875 %

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