Principles of Taxation for Business and Investment Planning 2020 Edition

23rd Edition

ISBN: 9781260433210

Author: Jones, Sally

Publisher: MCGRAW-HILL HIGHER EDUCATION

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Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business…

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Textbook Question

Chapter 4, Problem 10AP

Firm H has the opportunity to engage in a transaction that will generate $100,000 cash flow (and taxable income) in year 0.

a. Calculate the after-tax cash flow from the transaction described above.
b. How does the NPV of the transaction change if the firm could restructure the transaction in a way that doesn’t change before-tax cash flow but results in no taxable income in year 0, $50,000 taxable income in year 1, and the remaining $50,000 taxable income in year 2? Assume a 6 percent discount rate and a 21 percent marginal tax rate for the three-year period.

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Chapter 4, Problem 9AP

Chapter 4, Problem 11AP

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General Accounting question

Wilson Corporation acquires Greatbatch Company for $80 million cash in a merger. The balance sheets of both companies at the date of acquisition are as follows: Balance Sheet (in millions) Wilson Greatbatch Current assets $96 $8 Property and equipment 800 144 Intangibles 32 4.8 Total assets $928 $156.8 Current liabilities $40 $3.2 Long-term debt 640 104 Capital stock 80 19.2 Retained earnings 192 24 Accumulated other comprehensive income (loss) (24) 6.4 Total liabilities and equity $928 $156.8 Greatbatch's property and equipment is overvalued by $48 million, its reported intangibles are undervalued by $32 million, and it has unreported intangibles, in the form of customer databases and marketing agreements, valued at $11.2 million. Required Prepare Wilson's balance sheet immediately following the merger. Use a negative sign with your answer for AOCI if the balance is a loss.

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Chapter 4 Solutions

Principles of Taxation for Business and Investment Planning 2020 Edition

Ch. 4 - Prob. 1QPD Ch. 4 - Mrs. K is about to begin a new business activity...Ch. 4 - Prob. 3QPD Ch. 4 - On the basis of the discussion in this chapter and...Ch. 4 - Prob. 5QPD Ch. 4 - Why do income shifts and deduction shifts usually...Ch. 4 - Prob. 7QPD Ch. 4 - Prob. 8QPD Ch. 4 - Prob. 9QPD Ch. 4 - Prob. 10QPD

Ch. 4 - Identify the reasons why managers should evaluate...Ch. 4 - Prob. 12QPD Ch. 4 - Prob. 13QPD Ch. 4 - Prob. 14QPD Ch. 4 - Using the 2019 corporate tax rate: a. What are the...Ch. 4 - Refer to the individual rate schedules in Appendix...Ch. 4 - Refer to the individual rate schedules in Appendix...Ch. 4 - Ms. JK recently made a gift to her 19-year-old...Ch. 4 - Firm A has a 21 percent marginal tax rate, and...Ch. 4 - Prob. 6AP Ch. 4 - Prob. 7AP Ch. 4 - Firm M and Firm N are related parties. For the...Ch. 4 - Company K has a 30 percent marginal tax rate and...Ch. 4 - Firm H has the opportunity to engage in a...Ch. 4 - What is the effect on the NPV of the restructured...Ch. 4 - French Corporation wishes to hire Leslie as a...Ch. 4 - Corporation R signed a contract to undertake a...Ch. 4 - Prob. 14AP Ch. 4 - Lardo Inc. plans to build a new manufacturing...Ch. 4 - Prob. 16AP Ch. 4 - Prob. 17AP Ch. 4 - Prob. 18AP Ch. 4 - Prob. 19AP Ch. 4 - Prob. 20AP Ch. 4 - Refer to the facts in the preceding problem. At...Ch. 4 - For each of the following scenarios, indicate...Ch. 4 - Assume that Congress amends the tax law to provide...Ch. 4 - Firm L has 500,000 to invest and is considering...Ch. 4 - Prob. 1IRP Ch. 4 - Mr. and Mrs. K own rental property that generates...Ch. 4 - Prob. 3IRP Ch. 4 - Prob. 4IRP Ch. 4 - Prob. 5IRP Ch. 4 - Prob. 6IRP Ch. 4 - Prob. 7IRP Ch. 4 - Firm HR is about to implement an aggressive...Ch. 4 - Prob. 1TPC Ch. 4 - Prob. 2TPC Ch. 4 - Prob. 3TPC Ch. 4 - Ms. Z has decided to invest 75,000 in state bonds....

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Solution Summary: The author explains how income deferral and opportunity costs decrease as the cash flow increases in a future taxable year. The NPV of before-tax cash flows for Firm H would be 79,000.

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Chapter 4 Solutions