Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 2, Problem 18QP
a)
Summary Introduction
To calculate: The tax bill of Corporation G and Corporation I.
Introduction:
Tax refers to the charge levied by the government on the individuals or corporations’ income. The corporations have the obligation to pay tax to the government. The tax rate differs based on the income of the company. The tax rate is as follows:
| Taxable income | Tax rate |
| $0 to $50,000 | 15% |
| $50,001 to $75,000 | 25% |
| $75,001 to $100,000 | 34% |
| $100,001 to $335,000 | 39% |
| $335,001 to $10,000,000 | 34% |
| $10,000,001 to $15,000,000 | 35% |
| $15,000,001 to $18,333,333 | 38% |
| $18,333,334 and above | 35% |
b)
Summary Introduction
To determine: The additional taxes paid by the firms if their income increases by $10,000.
Introduction:
Tax refers to the charge levied by the government on the individuals or corporations’ income. The corporations have the obligation to pay tax to the government. The tax rate differs based on the income of the company. The tax rate is as follows:
| Taxable income | Tax rate |
| $0 to $50,000 | 15% |
| $50,001 to $75,000 | 25% |
| $75,001 to $100,000 | 34% |
| $100,001 to $335,000 | 39% |
| $335,001 to $10,000,000 | 34% |
| $10,000,001 to $15,000,000 | 35% |
| $15,000,001 to $18,333,333 | 38% |
| $18,333,334 and above | 35% |
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Consider two firms, Alpha, Inc. and Omega Corporation. Both corporations will either make $20 million or lose $10 million every year with equal probability. The firms' profits are perfectly positively correlated. That is, any year Alpha, Inc. earns $20 million, Omega Corporation also makes $20 million, and the same is true of a losing year. Assume that the corporate tax rate is 34%. What are the total expected after-tax profits of both firms when they are two separate firms?
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Chapter 2 Solutions
Fundamentals of Corporate Finance
Ch. 2.1 - Prob. 2.1ACQCh. 2.1 - What is liquidity? Why is it important?Ch. 2.1 - What do we mean by financial leverage?Ch. 2.1 - Explain the difference between accounting value...Ch. 2.2 - What is the income statement equation?Ch. 2.2 - Prob. 2.2BCQCh. 2.2 - Why is accounting income not the same as cash...Ch. 2.3 - What is the difference between a marginal and an...Ch. 2.3 - Do the wealthiest corporations receive a tax break...Ch. 2.4 - Prob. 2.4ACQ
Ch. 2.4 - Prob. 2.4BCQCh. 2.4 - Why is interest paid not a component of operating...Ch. 2 - What types of accounts are the most liquid?Ch. 2 - What is an example of a noncash expense?Ch. 2 - The marginal tax rate is the tax rate which...Ch. 2 - Prob. 2.4CTFCh. 2 - Prob. 1CRCTCh. 2 - Accounting and Cash flows [LO2] Why might the...Ch. 2 - Prob. 3CRCTCh. 2 - Operating Cash Flow [LO2] In comparing accounting...Ch. 2 - Prob. 5CRCTCh. 2 - Cash Flow from Assets [LO4] Suppose a companys...Ch. 2 - Prob. 7CRCTCh. 2 - Net Working Capital and Capital Spending [LO4]...Ch. 2 - Prob. 9CRCTCh. 2 - Prob. 10CRCTCh. 2 - Prob. 11CRCTCh. 2 - Earnings Management [LO2] Companies often try to...Ch. 2 - Building a Balance Sheet [LO1] KCCO, Inc., has...Ch. 2 - Building an Income Statement [LO1] Billys...Ch. 2 - Dividends and Retained Earnings [LO1] Suppose the...Ch. 2 - Prob. 4QPCh. 2 - Calculating Taxes [LO3] The Dyrdek Co. had 267,000...Ch. 2 - Prob. 6QPCh. 2 - Calculating OCF [LO4] Ridiculousness, Inc., has...Ch. 2 - Calculating Net Capital Spending [LO4] Bowyer...Ch. 2 - Calculating Additions to NWC [LO4] The 2014...Ch. 2 - Cash Flow to Creditors [LO4] The 2014 balance...Ch. 2 - Cash Flow to Stockholders [LO4] The 2014 balance...Ch. 2 - Prob. 12QPCh. 2 - Market Values and Book Values [LO1] Klingon...Ch. 2 - Prob. 14QPCh. 2 - Using Income Statements [LO1] Given the following...Ch. 2 - Preparing a Balance Sheet [LO1] Prepare a 2015...Ch. 2 - Prob. 17QPCh. 2 - Prob. 18QPCh. 2 - Net Income and OCF [LO2] During 2014, Raines...Ch. 2 - Prob. 20QPCh. 2 - Prob. 21QPCh. 2 - Calculating Cash Flows [LO4] Consider the...Ch. 2 - Net Fixed Assets and Depreciation [LO4] On the...Ch. 2 - Prob. 24QPCh. 2 - Use the following information for Taco Swell,...Ch. 2 - Use the following information for Taco Swell,...Ch. 2 - Prob. 1MCh. 2 - Prob. 2M
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