1.)Consider a firm with an EBIT of $568,000. The firm finances its assets with $1,180,000 debt (costing 6.2 percent) and 218,000 shares of stock selling at $17.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 93,000 shares of stock. The firm is in the 30 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $568,000.

Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Round your answers to 4 decimal places.)

EPS before

$

EPS after

$

Difference

$

2.)Hunt Taxidermy, Inc., is concerned about the taxes paid by the company in 2015. In addition to $43.8 million of taxable income, the firm received $3,070,000 of interest on state-issued bonds and $1,800,000 of dividends on common stock it owns in Oakdale Fashions, Inc. (Use Table 2.3)

Calculate Hunt Taxidermys tax liability. (Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.)

Tax liability

$

Calculate Hunt Taxidermys average tax rate.

Average tax rate

%

Calculate Hunt Taxidermys marginal tax rate.

3.) Tater and Pepper Corp. reported free cash flows for 2015 of $58.1 million and investment in operating capital of $41.1 million. Tater and Pepper incurred $15.5 million in depreciation expense and paid $20.9 million in taxes on EBIT in 2015. Calculate Tater and Peppers 2015 EBIT. (Enter your answer in millions of dollars rounded to 1 decimal place.) EBIT $ m

4.) Use the following information to find dividends paid to common stockholders during 2015. (Input all amounts as positive values. Enter your answers in millions.)

2015

Balance of retained earnings, December 31, 2014

$

498

m

Plus: Net income for 2015

55

m

Less: Cash dividends paid

Preferred stock

$

2

m

Common stock

m

Total cash dividends paid

m

Balance of retained earnings, December 31, 2015

$

532

m

5.) Muffins Masonry, Inc.s, balance sheet lists net fixed assets as $33.00 million. The fixed assets could currently be sold for $57.00 million. Muffins current balance sheet shows current liabilities of $15.00 million and net working capital of $14.00 million. If all the current accounts were liquidated today, the company would receive $8.20 million cash after paying the $15.00 million in current liabilities.

What is the book value of Muffins Masonrys assets today and the market value of these assets? (Enter your answers in millions of dollars rounded to 2 decimal places.)

	BOOK VALUE		MARKET VALUE
Current assets	$ m		$ m
Fixed assets	m		m
Total	$ m		$ m

6.)Avas SpinBall Corp. lists fixed assets of $14 million on its balance sheet. The firms fixed assets have recently been appraised at $20 million. Avas SpinBall Corp.s balance sheet also lists current assets at $7 million. Current assets were appraised at $10 million. Current liabilities book and market values stand at $5 million and the firms book and market values of long-term debt are $9 million.

Calculate the book and market values of the firms stockholders equity. Construct the book value and market value balance sheets for Avas SpinBall Corp. (Enter your answers in millions of dollars.)

7.)Suppose that in addition to $16.80 million of taxable income, Texas Taco, Inc., received $9,100,000 of interest on state-issued bonds and $810,000 of dividends on common stock it owns in Arizona Taco, Inc.

a.	Use the tax schedule in Table 2.3 to calculate Texas Tacos income tax liability. (Enter your answer in dollars not in millions.)

Income tax liability

$

b.	What are Texas Tacos average and marginal tax rates on taxable income? (Round your answers to 2 decimal places.)

Average tax rate	%
Marginal tax rate	%

BOOK VALUE

MARKET VALUE

Assets

Current assets

$ m

$ m

Fixed assets

m

m

Total

$ m

$ m

Liabilities and Equity

Current liabilities

$ m

$ m

Long-term debt

m

m

Stockholders equity

m

m

Total

$ m

$ m

8.) The Dakota Corporation had a 2015 taxable income of $31,000,000 from operations after all operating costs but before (1) interest charges of $9,100,000; (2) dividends received of $840,000; (3) dividends paid of $5,700,000; and (4) income taxes.

a.	Use the tax schedule in Table 2.3 to calculate Dakotas income tax liability. (Round your answer to the nearest dollar amount.)

Income tax liability

$

b.	What are Dakotas average and marginal tax rates on taxable income? (Round your answers to the nearest whole percent.)

Average tax rate	%
Marginal tax rate	%