Summary GB 550: Financial Management Unit Three: Bonds, Interest Rates, and Risk and Return Assignment 100% CORRECT
GB550: UNIT TWO FINANCIAL STATEMENT GB550: Financial Management Unit Two Financial Statements, Cash Flow, and Taxes Assignment Phyllis Rhyne-Bright February 19, 2015 Chapter 2 problem 2-8: Corporate Tax Liability This study source was downloaded by from CourseH on :21:55 GMT -06:00 This study resource was shared via CourseH 2 GB550: UNIT TWO FINANCIAL STATEMENT The Wendt Corporation had $10.5 million of taxable income. a. What is the company’s federal income tax bill for the year? Federal taxes are based on a percentage of taxable income. The formula for this business is: Taxes = 3,400,000 + .35 (10,500,000 – 10,000,000) = 3,400,000 + 175,000 = 3,575,000 (The federal income taxes for the Wendt Corporation) 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? The tax is based on the firm’s taxable income of 35%. Taxes = 1,000,000(.35) = 350,000 is the taxes on an additional $1,000,000 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? Because this is a dividend income the Wendt Corporation is taxed 30% of the 35% in the company’s tax bracket: (.30)(.35) =0.105 = 10.5%
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