Curtis invests $450,000 in a city of Athens bond that pays 6 percent interest. Alternatively, Curtis could have invested the $450,000 in a bond recentissued by Initech, Incorporated that pays 7 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24percent.How much implicit tax would Curtis pay on the city of Athens bond?Multiple ChoiceO$27,000.00$1,755.00$1,655.00Help Save & E$4,500.00

The implicit tax equals the difference in pre-tax income earned from a similar (same risk) bond.How…

Answered: Curtis invests $450,000 in a city of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 24% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end of five years. The alternatives are: • A taxable corporate bond yielding 5.333% before tax and the interest can be reinvested at 5.333% before tax. • A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax rate of return). • Land that will increase in value. The gain on the land is classified and taxed as a long-term capital gain. The income from the bonds is taxed as ordinary income. How much must the land increase in value to yield a greater after-tax return than either of the bonds? For this analysis, ignore the effect of property taxes on the land. Below are the factors for the compound amount of $1 and compound value of annuity payments at the end of five years: Interest Rate 4% 5% $1 Compounded for Five Years…
A resident of New York is in the 32% federal tax bracket and the 6% state income tax bracket and is not subject to the federal 3.8% NIIT. Which of the following bonds would offer the resident the highest after-tax yield? 1. Treasury bond paying 4.7%. 2. Corporate bond paying 4.9%. 3. Louisiana Municipal bond paying 3.5%. O 1 only. O 2 only. O 3 only. O 1 and 3 are the same and have the highest after-tax yield.
Corporate After-Tax Yield The Shrieves Corporation has $15,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds (which yield 5.9%), AT&T preferred stock (with a dividend yield of 5.0%), and state of Florida muni bonds (which yield 4% but are not taxable). The federal tax rate is 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. Find the after-tax rates of return on all three securities after paying federal corporate taxes. Round your answers to three decimal places. After-tax rate of return on AT&T bond: % After-tax rate of return on AT&T preferred stock: After-tax rate of return on Florida muni bonds: %
Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 24% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end of five years. The alternatives are: A taxable corporate bond yielding 5.333% before tax and the interest can be reinvested at 5.333% before tax. A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax rate of return). Land that will increase in value. The gain on the land is classified and taxed as a long-term capital gain. The income from the bonds is taxed as ordinary income. How much must the land increase in value to yield a greater after-tax return than either of the bonds? Below are the factors for the compound amount of $1 and compound value of annuity payments at the end of five years: Interest Rate $1 Compoundedfor Five Years $1 Annuity Compoundedfor Five Years 4% 1.2167 5.4163 5%…
shobha
Three friends - Jodie, Natile, and Neil - have asked you to determine the equivalent taxable yield on a municipal bond. The bond’s current yield is 3.75 percent with 5 years left until maturity. Jodie is in the 15 percent marginal tax bracket, Natalie is in the 25 percent bracket, and Neil is in the 35 percent tax bracket. Calculate the equivalent taxable yield for your three friends. Assuming a similar AAA corporate bond yields 4 percent, which of your friends should purchase the municipal bond?
Assume you are in the 32 percent tax bracket and purchase a 3.26 percent, tax-exempt municipal bond. Calculate the taxable equivalent yield for this investment using the formula: Taxable equivalent yield = Tax-exempt return + (1 - Your tax rate) ÷ Note: Enter your answer as a percent rounded to 2 decimal places. Taxable equivalent yield %
If Tom invests $45,000 in a taxable corporate bond that provides a 9 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.
Corporate bonds issued by Johnson Corporation yield 8% interest at this time. Equal risk municipal bonds yield 6%. At what tax rate would an investor be indifferent to buying one or the other?
David has the option to invest in one of the following Town of Elmdale bond that pays 6% interest annually Town of Schitt's Creek bond that pays 6.5% interest annually Prada corporate bond that pays 7% interest annually Gucci corporate bond that pays 6% interest annually David anticipates that his marginal rate will be 10%. Which investment should he choose from tax perspective? a.Group of answer choices b.Prada bond c.Elmdale bond d.Schitt's Creek bond e. Gucci bond
Ignacio is in possession of a 6% municipal bond. If he is in the 24% tax bracket, then what is the taxable equivalent yield? Group of answer choices 5.2% 7.9% 8.1% 8.4%

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