2.1. Assume that Provident Health System, a for-profit hospital, has $1 million in taxable income for 2012, and its tax rate is 30 percent.

a. Given this information, what is the firms net income? (Net income is what remains after taxes have been paid.)

b. Suppose the hospital pays out $300,000 in dividends. A stockholder, Carl Johnson, receives $10,000. If Carls tax rate on dividends is 15 percent, what is his after-tax dividend?

2.3. Kim Davis is in the 40 percent personal tax bracket. She is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate.

a. What is her after-tax yield (interest rate) on the bonds?

b. Suppose Twin Cities Memorial Hospital has issued tax-exempt bonds that have an interest rate of 6 percent. With all else the same, should Kim buy the HCA or the Twin Cities bonds?

c. With all else the same, what interest rate on the tax-exempt Twin Cities bonds would make Kim indifferent between these bonds and the HCA bonds?