Hello tutor provide answer this accounting question A corporation can earn 7.50% if it invests in municipal bonds. The corporation can also earn8.00% (before tax) by investing in preferred stock. Assume that the two investments haveequal risk. What is the break-even corporate tax rate that makes the corporation indifferentbetween the two investments? Assume a 70.00% dividend exclusion for tax on dividends.a. 17.29%b. 26.04%c. 17.08%d. 20.83%e. 21.88%

Step 1:- Introduction to the DividendThe dividend is the monetary amount paid to the stockholders…

Answered: A corporation can earn 7.50% if it…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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Assume that a company borrows at a cost of 0.08. Its tax rate is 0.35. What is the minimum after-tax cost of capital for a certain cash flow if a. 100 percent debt is used? b. 100 percent common stock? (assume that the stockholders will accept 0.08)
a. What is the relative tax advantage of corporate debt if the corporate tax rate is TC=0.22, the personal tax rate on interest is TpD=0.37, but all equity income is received as capital gains and escapes tax entirely ( TpE=0 )? b. How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 10% ? Note: Do not round intermediate calculations. Round your answers to 4 decimal places.
In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be? A. Cannot be determined from the information given. B. 17.6% C. 27% D. 19.8% E. 22.2%
What is the relative tax advantage of corporate debt if the corporate tax rate Tc = 21%, thepersonal tax rate Tp = 37%, but all equity income is received as capital gains and escapestax entirely (TpE = 0%)? How does the relative tax advantage change if the companydecides to pau out all equity income as cash dividends that are taxed at 20%?
Please answer both questions 1 and 2 and show working. 1. Mantle Corporation is considering two equally risky investments: ∙ A $5,000 investment in preferred stock that yields 6.75%. ∙ A $5,000 investment in a corporate bond that yields 10.00%. What is the breakeven corporate tax rate that makes the company indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.) a. 50.13% b. 40.75% c. 46.87% d. 37.08% e. 34.23% 2. Wie Corp's sales last year were $280,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much…
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What is the relative tax advantage of corporate debt if the corporate tax rate is Tc=0.35, the personal tax rate is Tp=0.35, but all equity income is received as capital gains and escapes tax entirely ( T pE =0)? How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 15%?
An all equity corporation has net income of $63,313and a required rate of return of 0.14%. What would the value of this firm be if it borrowed $141,848 to buy back some of its stock? Assume a corporate tax rate of 0.45%.
From a corporation's point of view, does the tax treatment of dividends and interest paid favor the use of debt financing or equity financing? O Debt financing Equity financing You bought 1,000 shares of Tund Corp. stock for $60.59 per share and sold it for $82.35 per share after a few years. How will your gain or loss be treated when you file your taxes? will O As a capital gain taxed at the long-term tax rate O As a capital gain taxed at the current ordinary-income tax rate Depreciation expenses directly affect a company's taxable income. An increase in depreciation expense will lead to a tax deducted from a company's earnings, thus leading to a operating cash flow. According to a tax law established in 1969, taxpayers must pay the The applicable tax rate for S corporations is based on the: Stockholders' individual tax rates O Corporate tax rate taxable income. It of the Alternative Minimum Tax (AMT) or regular tax.
Refer to the corporate marginal tax rate information in Table 2.3 . b-1 Compute the average tax rate for a corporation with exactly $335,001 in taxable income. Average tax rate % b-2 What is the average tax rate for a corporation with exactly $18,333,334? Average tax rate % c. The 39 percent and 38 percent tax rates both represent what is called a tax “bubble.” Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $216,000. What would the new 39 percent bubble rate have to be? (Round your answer to 2 decimal places. (e.g., 32.16)) Bubble rate %
The personal tax on interest payments is 33%.The personal tax rate on equity capital gain is 15%.The corporate tax is 35%.Given all these tax rates and all otehr factors are kept constant,will investors have a preference to debt or equity? A.Cannot determine from the information provided B.Debt is preferred to equity C.Equity is preferred to debt D.M-M proposition I holds and the investors are indifferent between debt and equity
As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price: (Po Px)/D = (1 Tp)/(1-TG) where PO is the price just before the stock goes ex, Px is the ex-dividend share price, D is the amount of the dividend per share, Tp is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains.

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