Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 21, Problem 12PS
Verify that the traditional tax shelter with a progressive tax (Spreadsheet
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What is the compressed adjusted present value(APV) model, and how does this differ from theModigliani and Miller models? (Hint: think of thediscount rate on the tax shield. What is “compressed” about this model?)
Which of the following formulas can be used to represent targeted pretax profit, πB, as a function of targeted after-tax profit, πA, given an effective income tax rate of t?
Multiple Choice
πB = πA/(1 - t)
πB = πA × (1 + t)
πB = FC/(1 − t)
πB = (1 + t)/πA
πB = πA × (1 − t)
Can you please explain the PV that is used to calculate the present value of tax savings. That is: PV(B26,B22,-B25). I am not sure what figure to use as the PV.
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Essentials Of Investments
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- How is the compressed adjusted present value (APV) model different from the Modigliani and Miller models? (Hint: consider the tax shield's discount rate.) What about this model is "condensed"?)arrow_forwardOf the following, the most likely effect of an increase in income tax rates would be to: A) Decrease the savings rate B) Decrease the supply of loanable funds C) Increase interest rates a. All statements are correct. b. Only one statement is correct. c. Only one statement is incorrect.arrow_forwardTotal Income \table[[Lower Bound, Upper Bound, Rate,\ table[[Maximum Money in], [Bracket]], \table[[Maximum Tax in], [Bracket]]], [$0, $12,200,0%, $12, 200, $0 3. Write a function to model the total tax paid, T(x), with a total income of x dollars. Total Income Lower Bound $12,201 $57,201 $212,201 Upper Bound Rate Maximum Money in Maximum Tax in Bracket Bracket $0 $12,200 $57,200 12% 0% $12,200 $45,000 $5,400 $0 $212,200 25% $155,000 $38,750 $512,200 35% $300,000 $105,000 39.6% No Limit No Limit $512,201 No Limit 2. How many slopes would be on this graph?arrow_forward
- I need help with B. What is the total value of the interest tax shield at Year 0?arrow_forwardAssuming no changes in other variables, which of the following would decrease ROA? A. A decrease in the effective tax rate B. A decrease in interest expense C. An increase in average assetsarrow_forwardConsider a tax system where the first $40,000 of income is tax free, the next $40,000 is taxed at 10%, and all income above $80,000 is taxed at 20%. 1. Graph the total tax as a function of income. Be sure to label carefully. Тах Income 2. Graph the ATR(average) and MTR(marginal) rate. Label carefully. MTR, ATR 0.40 0.20 0.00 Income 3. Calculate the tax for individuals that earn: $20,000 Tax = ATR = %, MTR = $40,000 Tax = ATR = MTR = $60,000 Tax = ATR = MTR = $80,000 Tax = ATR = MTR = $100,000 Tax = ATR = MTR =arrow_forward
- Of the following, the most likely effect of an increase in income tax rates would be to: decrease the savings rate? decrease the supply of loanable funds? increase interest rates ? all of the choices are correctarrow_forwardChoose a,b,c,d,e for the following: Question 1 - Debt x Interest Rate x Tax Rate: a. gives us the value of taxes saved due to interest expense. b. gives us the value of taxes paid on the interest. c. gives us the value of the annual dividend tax shield. d. gives us the present value of the annual interest tax shield. e. allows us to save taxes because equity is tax deductible.arrow_forwardIf an after-tax rate of return = 10% is required and the Effective tax rate is 35%. What is the estimated MARR for before tax economic analysis. Select one: a. 13.4 % b. 19.4 % c. 17.4 % d. 15.4 %arrow_forward
- 1) The effect on the FICA Taxes Payable Account when a payment is made is called: a. Increase with a, CRb. Increase with a, DRc. Decrease with a DRd. Decrease with a, CR 2) From the options below, which of the following statements is true? a. Payroll Tax Expense increases on the credit side of the accountb. FICA Medicare Payable increases with a creditc. Federal Income Tax Withholding Payable decreases with a creditd. Employee Payroll Taxes withheld are recorded in Payroll Tax Expense 3) From the options below, identify the one that is NOT an example of internal control proceduresthat help prevent payroll fraud. a. Require mandatory vacations.b. Outsource Payroll Administration.c. Conduct periodic unannounced audits.d. Make sure only one person handles payroll functions. 4) Sally Carson has cumulative earnings of $89,900 and earns $6,500 during the current payperiod. If the FICA rate is 4.2% for Social Security, with a limit of $106,800, and 1.45% forMedicare, applied to all earnings,…arrow_forwardWhat is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardThe equivalent after-tax return for an investment is computed a O ● Pretax return / (1 - tax rate) O Pretax return / tax rate Pretax return * tax rate O Pretax return * (1 - tax rate)arrow_forward
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