Last year Almazan Software reported $11.500 million of sales, $6.000 million of operating costs other than depreciation, and $1.100 million of depreciation. The company had $5.000 million of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 25%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $0.860 million. By how much will net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes. (Round your final answer to 4 decimal places.)
In 2020, Uniontown Books had EBIT equal to -$1,200,000. In 2021, its EBIT was $1,800,000.
The company has no debt, and therefore, pays no interest expense. Its corporate tax rate is 25%. What was Uniontowns tax liability for 2021? (Assume that the company takes full advantage of the carry-forward provision.)
Which of the following statements is CORRECT?
| | a. The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes. Thus, the federal government receives no tax revenue from these businesses, even though they report high accounting profits. | | |
| | b. All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code. | | |
| | c. Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that law, corporate income was subject to double taxation, whereby the firm was taxed on the corporation's income and stockholders were taxed again on this income when it was paid to them as dividends. | | |
| | d. Small corporations that qualify under the Tax Code can elect not to pay corporate taxes, but then each stockholder must report his or her pro rata shares of the firm's income as personal income and pay taxes on that income. | | |
| | e. All corporations other than non-profits are subject to corporate income taxes, which are 15% for the lowest amounts of income and 50% for the highest income amounts. | |
In 2020, Collins Co. had taxable income of -$6,300,000. In 2021, the firm has taxable income of $13,000,000.
Its corporate tax rate is 25%. Assume that the company takes full advantage of the Tax Code's carry-forward provision. What is Collins tax liability for 2021?
Alan and Sara Winthrop are a married couple who file a joint income tax return. They have two children, and they have legitimate itemized deductions totaling $27,500. Their total income from wages is $178,900. Assume the following tax table is applicable:
Married Couples Filing Joint Returns
| If Your Taxable Income Is | You Pay This Amount on the Base of the Bracket | Plus This Percentage on the Excess over the Base | Average Tax Rate at Top of Bracket |
| Up to $19,750 | $0.00 | | 10.0% | 10.0% |
| $19,750-$80,250 | 1,975.00 | 12.0 | 11.5 |
| $80,250-$171,050 | 9,235.00 | 22.0 | 17.1 |
| $171,050-$326,600 | 29,211.00 | 24.0 | 20.4 |
| $326,600-$414,700 | 66,543.00 | 32.0 | 22.8 |
| $414,700-$622,050 | 94,735.00 | 35.0 | 26.9 |
| Over $622,050 | 167,307.50 | 37.0 | 37.0 |
What is their marginal tax rate?
In 2020, Mays Industries taxable income was -$85,000. In 2021, its taxable income was $120,000.
Its corporate tax rate is 25%. Assume that the company takes full advantage of the Tax Code's carry-forward provision. What is the company's tax liability for 2021?
Which of the following statements is CORRECT?
| | a. Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to discourage the use of debt financing by corporations. | | |
| | b. To estimate the net cash provided by operations, depreciation must be subtracted from net income because depreciation is a non-cash charge that has been added to revenue. | | |
| | c. If Congress changed depreciation allowances so that companies had to report higher depreciation levels for tax purposes in 2021, companies would have lower free cash flows in 2021. | | |
| | d. The current cash flow from existing assets is highly relevant to investors. However, since the value of the firm depends primarily upon its growth opportunities, accounting net income projections from those opportunities are the only relevant future flows with which investors are concerned. | | |
| | e. Two metrics that are used to measure a company's financial performance are net income and free cash flow. Accountants tend to emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on free cash flows as they do on net income. | |
Bauer Software's current balance sheet shows total common equity of $5,125,000. The company has 520,000 shares of stock outstanding, and they sell at a price of $27.50 per share. By how much do the firm's market and book values per share differ? (Round your intermediate and final answers to two decimal places.)
The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends and the riskiness of those cash flows.
Hayes Corporation has $192 million of common equity, with 6 million shares of common stock outstanding. If Hayes' Market Value Added (MVA) is $150 million, what is the company's stock price? (Round your final answer to two decimal places.)
