GB550 Unit 2 Assignment Crystal Lyon question and answers

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 is: Taxes = 3,400,000 + 0.35(10,500,000 – 10,000,000) = 3,400,000 + 175,000 Answer: Wendt Corporation Federal Income Tax is 3,575,000 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(0.35) Answer: On an additional $1 million, the tax on this interest income is 350,000 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: (0.30)(0.35) =0.105 = 10.5% = 1,000,000 (1-0.105) = 1,000,000(0.895) = 895,000 Answer: Taxes are 1,000,000 - 895,000 = $105,000 Chapter 3 Problem 3-6: Du Pont Analysis Gardial & Son has an ROA of 12%, a 5% profit margin, and a return on equity equal to 20%. What is the company’s total assets turnover? What is the firm equity multiplier? The company’s total assets turnover is can be found by using ROA. The ROA equals the profit margin multiplied by the total assets turnover. 0.12 = 0.05 0.12/0.05 = x Total assets turnover = 2.4 Equity multiplier can be determined by ROE ROE = ROA x Equity multiplier 0.20 = 0.12x 0.20/0.12 = x Answer: The equity multiplier of the business is = 1.7