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Consider a C corporation. The corporation earns $3.5 per share before taxes. After the corporation has paid its corresponding taxes, it will distribute 50% of its earnings to its shareholders as a dividend. The corporate tax rate is 35%, the tax rate on dividend income is 15%, and the personal income tax rate is set at 39.6%.
1. What are the shareholder's earnings from the corporation after all corresponding taxes are paid?
2. How much is the total effective tax rate on the corporation earnings?
A thrift has an annual CGAP of -$25 million. A credit union has an annual CGAP of +$5 million. The thrift has total assets of $500 million and net income of $7.5 million and the credit union has total assets of $40 million and net income of $0.7 mill..
If there is no chance of default what would be the price of this corporate bond? if there is no chance of default, then the required rates of return for money at various horizons is given by the Treasury zero yield curve above. Given these rates, wha..
Mary Smith is a participant in the Z Score Trucking Company's "Stock Bonus Plan". Last year she received a contribution of 1,000 shares of company stock valued at $25,000. At retirement, Mary received a full distribution (in kind) from the plan. What..
Currently, the term structure is as follows: One-year bonds yield 7.50%, two-year bonds yield 8.50%, three-year bonds and greater maturity bonds all yield 9.50%. You are choosing between one-, two-, and three-year maturity bonds all paying annual cou..
Which of the following will necessarily cause a company’s ROE to increase?
Compute the effect of this estimated change in inflation on the price of a 15-year, 10% coupon bond with a current yield to maturity of 8%.
A public project produces the following individual benefits for stakeholders stated in terms of present values when an appropriate social discount rate of 15% is used: Al = $16,000; Bev = $25,000; and Chris = $17,000. Explain the importance of Pareto..
Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Usi..
Red's Radical Rhinitis Solutions (RRRS), a pharmaceutical manufacturer wants to know what rate it should use to discount the cash flows generated by its assets. You have calculated RRRS' beta of assets as 2.8. You looked at long term historical data ..
Using Spot and Forward Exchange Rates Suppose the spot exchange rate for the Canadian dollar is Can$1.04 and the six-month forward rate is Can$1.06. Which is worth more, a U.S. dollar or a Canadian dollar?
An engineer analyzing cost data discovered that the information for the first three years was missing. However, she knows that the cost in year four was $1250 and the cost continued to increase by 5% per year thereafter.
The earnings, dividends, and common stock price of Shelby Inc. are expected to grow at 5% per year in the future. Shelby's common stock sells for $29.50 per share, its last dividend was $1.80, and the company will pay a dividend of $1.89 at the end o..
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