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Calculate the tax disadvantage to organizing a U.S. business today, after passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003, as a corporation versus a partnership under the following conditions.
Assume that all earnings will be paid out as cash dividends. Operating income (operating profit before taxes) will be $500,000 per year under either organizational form; the effective corporate profits tax rate is 35 percent
(Tc = 0.35); the average personal tax rate for the partners of the business is also 35 percent (Tp = 0.35); and the capital gains tax rate on dividend income is 15 percent (Tcg = 0.15).
Then, recalculate the tax disadvantage using the same income but with the maximum tax rates that existed before 2003. These rates were 35 percent (Tc = 0.35) on corporate profits and 38.6 percent (Tp = 0.386) on personal investment income.
Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $3 million. The machinery can be sold to the Romulans today for $2.5 million. Klingon’s current balance sheet shows net fixed assets of $2 million, current liabilities of $71..
Show graphically the effect of an increase in the cost of defaulting. If the country's government would not default before this change, could this change lead to default?
Which of the following is an example of triangular arbitrage initiation?
Redlands inc. forecasted operating income of $150 and a return on total assets of 6% in the next reporting period. Compute the amount of total assets Redlands forecasts for the next reporting period
Suppose that Dunn Industries has annual sales of $4.05 million, cost of goods sold of $1,560,000, average inventories of $1,026,000, and average accounts receivable of $660,000. Assume that all of Dunn’s sales are on credit. What will be the firm’s o..
What is the underlying principle that supports depreciating long-term assets over their useful lives instead of just expensing them when purchased? We want full disclosure of large cash expenditures.
Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $190,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4 percent per year ..
Their planned capital budget for the upcoming year is $100.5 million. Their forecasted net income is $150.0 million. The firm has $50.0 million in short-term investments. The firm’s value of operations is $1,937.5 million. Outline the procedure for s..
A video rental store will cost $650,000 to open. Assuming annual sales of $1 million, variable costs of 35%, fixed costs of $300,000, depreciation of $100,000, and a tax rate of 35%, calculate the NPV of the project over a 10-year horizon (no inflati..
Which one of these statements is correct regarding ratio analysis as a predictor of bankruptcy?
Lloyd Corporation's 14% coupon rate, semi annual payment, $1,000 par value bonds, which mature in 30 years, are callable 5 years from today at $1,050. They sell at a price of $1,353.54, and the yield curve is flat. Assume that interest rates are expe..
Houston Inc. is considering a project which involves building a new refrigerated warehouse which will cost$7,000,000 at t = 0 and which is expected to have operating cash flows of $500,000 at the end of each of the next 20 years. Thus, at the end of ..
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