EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Textbook Question
Chapter 2, Problem 17QP
Marginal versus Average Tax Rates (Refer to Table 2.3.) Corporation Growth has $82,500 in taxable income, and Corporation Income has $8,250,000 in taxable income.
- a. What is the tax bill for each firm?
- b. Suppose both firms have identified a new project that will increase taxable income by $10,000. How much in additional taxes will each firm pay? Why is this amount the same?
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Check out a sample textbook solutionStudents have asked these similar questions
1) Suppose your firm earns $9 million in taxable income.What is the firm's tax liability?What is the average tax rate?What is the marginal tax rate? 50,000 15%50,001 - 75,000 25%75,001- 100,000. 34%100,001-335,000 39%335,001-10,000,000 34%10,000,001-15,000,000. 35%15,000,001-18,333,333 38%18,333,334- 34%
.......................................
2) Entity X earns 6 $ per share. If the discount rate or equity cost to be applied by the company is 20% and the investment profitability is 16%;a) According to the Walter formula, what would the price of shares be in $ if the business had distributed 50% profit?
b) According to Walter, is this the optimum rate of dividend distribution? Explain
Example: Marginal Vs. Average Rates
Suppose your firm earns $4 million in taxable income.
What is the firm's tax liability?
●
●
What is the average tax rate?
What is the marginal tax rate?
50,000*0.15
25,000*0.25
25000*0.34
235000*0.39
(4,000,000-335,000) *0.34
Total tax liability
Average tax rate
Marginal tax rate
7,500
6,250
8,500
91,650
1,246,100
1,360,000
If
f you are considering a project that will increase the firm's
taxable income by $1 million, what tax rate should you use in
your analysis?
Is it marginal or average tax rate that is normally relevant for
financial decision making?
34%
34%
Suppose that MNINK Industries' capital structure features 63 percent equity, 8 percent preferred stock, and 29 percent debt. Assume
the before-tax component costs of equity, preferred stock, and debt are 11.40 percent, 9.30 percent, and 8.00 percent, respectively.
What is MNINK's WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your
answer to 2 decimal places.)
Answer is complete but not entirely correct.
WACC
9.50
Chapter 2 Solutions
EBK CORPORATE FINANCE
Ch. 2 - Prob. 1CQCh. 2 - Prob. 2CQCh. 2 - Prob. 3CQCh. 2 - Prob. 4CQCh. 2 - Prob. 5CQCh. 2 - Cash Flow from Assets Why is it not necessarily...Ch. 2 - Operating Cash flow Why is it not necessarily bad...Ch. 2 - Net Working Capital and Capital Spending Could a...Ch. 2 - Cash Flow to Stockholders and Creditors Could a...Ch. 2 - Prob. 10CQ
Ch. 2 - Building a Balance Sheet Sankey, Inc., has current...Ch. 2 - Building an Income Statement Shellon, Inc., has...Ch. 2 - Market Values and Book Values Klingon Cruisers,...Ch. 2 - Prob. 4QPCh. 2 - Calculating OCF Barrell, Inc., has sales of...Ch. 2 - Calculating Net Capital Spending Gordon Driving...Ch. 2 - Building a Balance Sheet The following table...Ch. 2 - Cash Flow to Creditors The 2014 balance sheet of...Ch. 2 - Cash. Flow to Stockholders The 2014 balance sheet...Ch. 2 - Prob. 10QPCh. 2 - Cash Flows Ritter Corporations accountants...Ch. 2 - Financial Cash flows The Stancil Corporation...Ch. 2 - Building an Income Statement During the year, the...Ch. 2 - Calculating total Cash Flows Schwert Corp. shows...Ch. 2 - Using Income Statements Given the .following...Ch. 2 - Prob. 16QPCh. 2 - Marginal versus Average Tax Rates (Refer to Table...Ch. 2 - Prob. 18QPCh. 2 - Accounting Values versus Cash Flows In Problem 18,...Ch. 2 - Calculating Cash Flows Cusic Industries had the...Ch. 2 - Prob. 21QPCh. 2 - Use the following information for Ingersoll, Inc.,...Ch. 2 - Prob. 23QPCh. 2 - Prob. 24QPCh. 2 - Net Fixed Assets and Depreciation On the balance...Ch. 2 - Prob. 26QPCh. 2 - Prob. 1MCCh. 2 - Prob. 2MCCh. 2 - Prob. 3MC
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
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