What is the firm’s total tax liability for the year
P1–6 ETHICS PROBLEM What does it mean to say that managers should maximize shareholder wealth “subject to ethical constraints”? What ethical considerations might enter into decisions that result in cash flow and stock price effects that are less than they might otherwise have been?
E2–4 Your broker calls to offer you the investment opportunity of a lifetime, the chance
to invest in mortgage-backed securities. The broker explains that these securities are
entitled to the principal and interest payments received from a pool of residential
mortgages. List some of the questions you would ask your broker so as to assess the
risk of this investment opportunity.
P2–1 Corporate taxes Tantor Supply, Inc., is a small corporation acting as the exclusive
distributor of a major line of sporting goods. During 2013, the firm earned $92,500
a. Calculate the firm’s tax liability using the corporate tax rate schedule given in
b. How much are Tantor Supply’s 2013 after-tax earnings?
c. What was the firm’s average tax rate, based on your findings in part a?
d. What was the firm’s marginal tax rate, based on your findings in part a?
P2–4 Interest versus dividend income During the year just ended, Shering Distributors,
Inc., had pretax earnings from operations of $490,000. In addition, during the year
it received $20,000 in income from interest on bonds it held in Zig Manufacturing
and received $20,000 in income from dividends on its 5% common stock holding in
Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend
exclusion on its Tank Industries stock.
a. Calculate the firm’s tax on its operating earnings only.
b. Find the tax and the after-tax amount attributable to the interest income from
Zig Manufacturing bonds.
c. Find the tax and the after-tax amount attributable to the dividend income from
the Tank Industries, Inc., common stock.
d. Compare, contrast, and discuss the after-tax amounts resulting from the interest
income and dividend income calculated in parts b and c.
e. What is the firm’s total tax liability for the year?