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Managerial Finance: Dividends paid, marginal and average tax

Practice Question 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?

Practice Question 2-7
The Talley Corporation had a taxable income of $365,000 from operations after all operating cost 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 income tax liability and its after-tax income? What are the company's marginal and average tax rates on taxable income?

Practice Question 2-9
The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. 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%. Shrieve'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.

Please show the details of your calculations/work in your answer to the problems.

Tax rates are computed using this table:

If a Corporation's It Pays this amount on Plus this % on the Average tax
Taxable Income is the base of the bracket excess over the base Rate at top
of bracket

Up to 50,000 $0 15% 15.0%
50,000- 75,000 $7,500 25 18.3
75,000-100,000 $13,750 34 22.3
100,000-335,000 $22,250 39 34.0
335,000-10,000,000 $113,900 34 34.0
10,000,000-15,000,000 $3,400,000 35 34.3
15,000,000-18,333,333 $5,150,000 38 35.0
Over 18,333,333 $6,416,667 35 35.0

Solution Preview

Your tutorial is in Excel. Click in cells to see computations. Tax rates are computed using this table:

If a Corporation's It Pays this amount on Plus this % on the Average tax
Taxable Income is the base of the bracket excess over the base Rate at top
...

Solution Summary

Your tutorial is in Excel. Click in cells to see computations.

$2.19