(*Can you solve these questions using an excel document?)

(2-6) Statement of Retained Earnings

In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?

Intermediate Problems 711

(2-7) Corporate Tax Liability

The Talley Corporation had a taxable income of $365,000 from operations after all operating costs 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 is the firms taxable income? What is it marginal tax rate? What is its tax expense? What is its after-tax income? What is the average tax rate based on taxable income?

(2-8) Corporate Tax Liability

The Wendt Corporation had $10.5 million of taxable income.

What is the companys federal income tax bill for the year?

Assume the firm receives an additional $1 million of interest income from some bonds it owns. What is the additional tax on this interest income?

Now assume that Wendt does not receive the interest income but does receive an additional $1 million as dividends on some stock it owns. What is the additional tax on this dividend income?

(2-9) Corporate After-Tax Yield

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%. The 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.