1. Assume that a Medical Center, a for-profit hospital, has $8 million in taxable income for 2014 and its tax rate is 28%.
a. Given this information, what is the firm's net income?
b. Suppose the hospital pays out $750 thousand in dividends. A stockholder receives $17 thousand. If the stockholder's tax rate on dividends is 20%, what is the after-tax dividend?
2. A Medical Clinic had an equity balance of $1.84 million at the beginning of the year. At the end of the year, its equity balance was $2.3 million.
a. Assume that the Medical Clinic is a not-for profit organization. What was its net income for the period?
b. Now, assume that the Medical Clinic is an investor-owned business. Assuming zero dividends, what was Kaibab's net income?
c. Now, assume that the Medical Clinic is an investor-owned business. Assuming $200,000 in dividends, what was its net income?
This solution illustrates how to compute a for-profit entity's net income using the income statement method, how to compute its shareholder's after-tax dividend, and how to compute a not-for-profit and for-profit entity's net income using knowledge of its beginning and ending equity balances.