The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket. Introduction: Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation . In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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Answer 1

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Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction

To calculate:

The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket.

Introduction:

Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation. In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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The Fortune Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 24 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 28,000 Sales revenue $ 14,500 $ 15,000 $ 15,500 $ 12,500 Operating costs 3,100 3,200 3,300 2,500 Depreciation 7,000 7,000 7,000 7,000 Net working capital spending 340 390 440 340 ?

Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction

To calculate:

The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket.

Introduction:

Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation. In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

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Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction

To calculate:

The yield that municipals should offer to an investor to prefer them over a corporate bond which offers a 9% yield when the investor is in the 30% combined tax bracket.

Introduction:

Municipal bonds are bonds offered by local and state governments to fund their projects. While these bonds are similar to the treasury bonds and corporate bonds, in the case of municipal bonds, the interest income that we get from these bonds are exempted from federal income taxation. In the issuing state, the interest income is exempted from local and state taxation. When these bonds mature, the capital gain taxes have to be paid. Also in the case when these bonds are sold for a price which is greater than the price that the investor had purchased the bond for, capital gain taxes are applicable.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 2, Problem 13PS

Summary Introduction