Chapter 2 Financial Statements, Cash Flow, and Taxes 93 (2-8) Tax The Wendt Corporation had $10.5 million of taxable income. a. What is the company's federal income tax bill for the year? b. Assume the firm receives an additional S1 million of interest income from some bonds it owns. What is the additional tax on this interest income? c. 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) The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is orate After Tax Yield choosing among AT&T bonds, which yield 75%, state of Florida muni bonds, which yield 596 (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. The Moore Corporation has operating income (EBIT) of $750,000. The company's depreciation expense is $200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the company's net income? What is its net cash flow? (2-10) et Cash Flows (2-1) The Berndt Corporation expects to have sales of $12 million. Costs other than ome and Cash Flow Analysis depreciation are expected to be 75% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndt's expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses c. Now suppose that Congress changed the tax laws such that, instead of doubling d. If this were your company, would you prefer Congress to cause your depreciation doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? Berndt's depreciation, it was reduced by 50%. How would profit and net cash flow be affected? expense to be doubled or halved? Why? CHALLENGING PROBLEMS 12-13 (2-12) ee Cash Flows Using Rhodes Corporation's financial statements (shown after Part f), answer the following questions. a. What is the net operating profit after taxes (NOPAT) for 2016 b. What are the amounts of net operating working capital for both years? c. What are the amounts of total net operating capital for both years? d. What is the free cash flow for 2016? e. What is the ROIC for 2016? f. How much of the FCF did Rhodes use for each of the following purposes: after- tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.)
