5440 CHAP 2 PROBS

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Florida Institute of Technology *

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5440

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Finance

Date

Jan 9, 2024

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Uploaded by ProfessorGoose3810

HUC Suho (durma ) Chasrer & Feobew — (29) The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is Corporate After-Tax choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 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. CHALLENGING PROBLEMS 12-13 sing Rhodes Corporation’s financial statements (shown after Part f), answer the ollowing questions. What is the net operating profit after taxes (NOPAT) for 20162 What are the amounts of net operating working capital for both years? What are the amounts of total net operating capital for both years? . What is the free cash flow for 2016? What is the ROIC for 20167 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.) //_/—\ (2-12) Free Cash Flows e o TR

(2-13) Loss Carryback and Carryforward Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2016 2015 Sales $11,000 $10,000 Operating costs excluding depreciation 9,360 8,500 Depreciation and amortization 380 360 Earnings before interest and taxes $ 1,260 $ 1,140 Less interest 120 100 Pre-tax income $ 1,140 $ 1,040 Taxes (40%) 456 416 Net income available to common stockholders $ 684 $ 624 Common dividends $ 220 $ 200 Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2016 2015 Assets Cash $ 550 $ 500 Short-term investments 110 100 Accounts receivable 2,750 2,500 Inventories 1,650 ioo Total current assets $5,060 $4,600 Net plant and equipment 3,850 3,500 Total assets $8,910 $8,100 Liabilities and Equity Accounts payable $1,100 $1,000 Accruals 550 500 Notes payable 384 __200 Total current liabilities $2,034 $1,700 Long-term debt _1,100 _1,000 Total liabilities $3,134 $2,700 Common stock 4,312 4,400 Retained earnings 1,464 _1,000 Total common equity $5,776 $5,400 Total liabilities and equity $8,910 $8,100 The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2016 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time it files its 2016 income tax return, and it will receive a check from the U.S. Treasury. Show how it calculates this credit, and then indicate the firm’s tax liability for each of the next 5 years. Assume a 40% tax rate on all income to ease the calculations.

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