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Chapter 3 for Foundations of Financial Management - Excel

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Chapter 3 for Foundations of Financial Management - Excel Powered By Docstoc
					                    CHAPTER 1 PROBLEMS
            AN INTRODUCTION TO THE FOUNDATIONS
       OF FINANCIAL MANAGEMENT - THE TIES THAT BIND

PROBLEM 1-1
CORPORATE INCOME TAX

Corporate Tax Rates:
15%                                 $0-50,000
25%                             50,001-75,000
34%                            75,000-100,000
39%                           100,000-335,000
34%                           335,000 and over

DATA
Sales                                                3,000,000
COGS & Oper exp                                     (2,100,000)
Operating Profit                                       900,000

Dividend income                            6,000
 Less: 70%                                (4,200)       1,800     (0.70)
Interest exp                                         (400,000)
S-T Capital Gain:
 Selling price                            50,000
 Cost                                    (45,000)       5,000
L-T Capital Gain:
 Selling price                           100,000
 Cost                                    (80,000)      20,000
Taxable income

Tax Liability:
                    0.15                  50,000             0
                    0.25                  75,000             0
                    0.34                 100,000             0
                    0.39                 335,000             0
                    0.34                 335,000             0

                           Taxes due :                       0

PROBLEM 1-2
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                $0-50,000
25%                            50,001-75,000
34%                           75,000-100,000
39%                          100,000-335,000
34%                          335,000 and over

DATA
Sales                                               5,000,000
COGS                                               (2,000,000)
GP                                                  3,000,000
Oper exp                                           (1,000,000)
Interest income                                        20,000
Dividend income                          25,000
 Less: 70%                              (17,500)       7,500     (0.70)
Interest exp                                        (100,000)
Taxable income

Capital Gains and Losses:
Security gain                            40,000
Security loss                           (50,000)
Loss on S-T capt gain                                (10,000)

Tax Liability:
                   0.15                  50,000
                   0.25                  75,000
                   0.34                 100,000
                   0.39                 335,000
                   0.34                 335,000

                          Taxes due :                       0

PROBLEM 1-3
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                $0-50,000
25%                            50,001-75,000
34%                           75,000-100,000
39%                          100,000-335,000
34%                             335,000 and over

DATA
Sales                                                  3,000,000
COGS                                                  (2,000,000)
Gross profit                                           1,000,000
Operating expenses                                      (400,000)
Depreciation expense                                    (100,000)
Dividend income                             50,000
 Less: 70%                                 (35,000)      15,000     (0.70)
Interest expense                                       (150,000)
Taxable income

Tax Liability:
                      0.15                  50,000
                      0.25                  75,000
                      0.34                 100,000
                      0.39                 335,000
                      0.34                 335,000

                             Taxes due :

PROBLEM 1-4
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                   $0-50,000
25%                               50,001-75,000
34%                              75,000-100,000
39%                             100,000-335,000
34%                             335,000 and over

DATA
Sales(omitting 000)                                    6,000,000
COGS                                                  (4,200,000)   (0.70)
Gross Profit                                           1,800,000
Operating expenses                                      (800,000)
Taxable income

Capital Loss:
 Selling price                              75,000
 Cost                                      (80,000)
S-T Loss                                              (5,000)

Tax Liability:
                   0.15                  50,000
                   0.25                  75,000
                   0.34                 100,000
                   0.39                 335,000
                   0.34                 335,000

                          Taxes due :

PROBLEM 1-5
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                $0-50,000
25%                            50,001-75,000
34%                           75,000-100,000
39%                          100,000-335,000
34%                          335,000 and over

DATA
Sales (omitting 000)                               1,000,000
COGS                                                (600,000)
Gross profit                                         400,000
Operating expenses                                  (100,000)

Depreciation expense                               (150,000)
Dividend income                          40,000
 Less:70%                               (28,000)     12,000     (0.70)
Interest expense                                   (200,000)
Taxable income

Tax Liability:
                   0.15                  50,000
                   0.25                  75,000
                   0.34                 100,000
                   0.39                 335,000
                   0.34                 335,000

                          Taxes due :
PROBLEM 1-6
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                $0-50,000
25%                            50,001-75,000
34%                           75,000-100,000
39%                          100,000-335,000
34%                          335,000 and over

DATA
Sales (omitting 000)                                5,000,000
COGS                                               (4,300,000)
Gross Profit                                          700,000
Operating expenses                                   (100,000)
Dividend income                           5,000
 Less: 70%                               (3,500)       1,500     (0.70)
Capital Gains:
 Sell Price of Land                  150,000
 Cost                               (100,000)
  Gain                                                50,000
 Sell Price of Stock                 150,000
 Cost                               (100,000)
  Gain                                                50,000
Taxable income

Tax Liability:
                   0.15                  50,000
                   0.25                  75,000
                   0.34                 100,000
                   0.39                 335,000
                   0.34                 335,000

                          Taxes due :

PROBLEM 1-7
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                 $0-50,000
25%                             50,001-75,000
34%                            75,000-100,000
39%                         100,000-335,000
34%                         335,000 and over

DATA
Sales                                              4,000,000
COGS                                              (3,000,000)
Gross profit                                       1,000,000
Operating expense                                   (500,000)
Depreciation expense                                (350,000)
Dividend income                         12,000
 Less: 70%                              (8,400)       3,600     (0.70)
Taxable income

Tax Liability:
                  0.15                  50,000
                  0.25                  75,000
                  0.34                 100,000
                  0.39                 335,000
                  0.34                 335,000

                         Taxes due :

PROBLEM 1-8
CORPORATE INCOME TAX

Corporate Tax Rates
15%                               $0-50,000
25%                           50,001-75,000
34%                          75,000-100,000
39%                         100,000-335,000
34%                         335,000 and over

DATA
Sales (omitting 000)                               5,000,000
COGS                                              (3,000,000)
Gross profit                                       2,000,000
Operating expenses                                  (175,000)
Depreciation expense                                (125,000)
Interest expense                                    (200,000)
Taxable income

Capital Loss
 L-T Gain on Stock                         40,000
 S-T Loss on Stock                        (60,000)
Capital S-T Loss                                       (20,000)

Tax Liability:
                     0.15                  50,000
                     0.25                  75,000
                     0.34                 100,000
                     0.39                 335,000
                     0.34                 335,000

                            Taxes due :

PROBLEM 1-9
CORPORATE INCOME TAX

Corporate Tax Rates
15%                                  $0-50,000
25%                              50,001-75,000
34%                             75,000-100,000
39%                            100,000-335,000
34%                            335,000 and over

DATA
Sales                                                 6,000,000
COGS                                                 (3,000,000)
Gross profit                                          3,000,000
Operating expenses                                   (2,600,000)
Interest expense                                        (30,000)
Taxable income

Tax Liability:
                     0.15                  50,000
                     0.25                  75,000
                     0.34                 100,000
                     0.39                 335,000
                     0.34                 335,000

                            Taxes due :

PROBLEM 1-10
CORPORATE INCOME TAX
Corporate Tax Rates
15%                               $0-50,000
25%                           50,001-75,000
34%                          75,000-100,000
39%                         100,000-335,000
34%                         335,000 and over

DATA
Sales (omitting 000)                               4,500,000
COGS & Operating expenses                         (3,200,000)
Depreciation expense                                 (50,000)
Operating profit                                   1,250,000
Interest expense                                    (150,000)
Long term gain:
  Selling price                        120,000
  Purchase price                       (40,000)      80,000
Taxable Ordinary Income

Tax Liability:
                  0.15                  50,000
                  0.25                  75,000
                  0.34                 100,000
                  0.39                 335,000
                  0.34                 335,000

                         Taxes due :

PROBLEM 1-11
CORPORATE INCOME TAX

Corporate Tax Rates
15%                               $0-50,000
25%                           50,001-75,000
34%                          75,000-100,000
39%                         100,000-335,000
34%                         335,000 and over

DATA
Sales (omitting 000)                               6,500,000
COGS & Operating expenses                         (4,550,000)
Depreciation expense                                 (75,000)
Operating profit                                  1,875,000
Interest expense                                   (160,000)
Dividend Income                         60,000
Less 70% Exclusion                     (42,000)     18,000     (0.70)
Long term gain:
  Selling price                     400,000
  Purchase price                   (320,000)        80,000
Taxable Ordinary Income

Tax Liability:
                  0.15                  50,000
                  0.25                  75,000
                  0.34                 100,000
                  0.39                 335,000
                  0.34                 335,000

                         Taxes due :

PROBLEM 1-12
CORPORATE INCOME TAX


DATA
Taxable Income                         300,000

Tax Liability:
                  0.15                  50,000
                  0.25                  75,000
                  0.34                 100,000
                  0.39                 335,000
                  0.34                 335,000

                         Taxes due :

PROBLEM 1-13
CORPORATE INCOME TAX


DATA
Taxable Income                   20,000,000

Tax Liability:
                    0.35           20,000,000

                           Taxes due :

PROBLEM 1-14
CORPORATE INCOME TAX

A)
Taxable Income                     19,000,000

Tax Liability:


B)
Average tax rate
Marginal tax rate

C)
Taxable income
Tax Liability:


D)
Average tax rate
Marginal tax rate


MINI CASE

Corporate Tax Rates
15%                                 $0-50,000
25%                             50,001-75,000
34%                            75,000-100,000
39%                           100,000-335,000
34%                           335,000 and over

Sales                                             4,000,000
COGS                                             (2,400,000)
 Gross Profit                                     1,600,000

Tax-Deductible Expenses
Operating Expenses                   (600,000)
Interest Expenses           (300,000)   (900,000)

Other Income
Interest Income                          22,000
Preferred Dividend Income     30,000
 Less 70% exclusion          (21,000)      9,000
Taxable Ordinary Income

Gain on Sale
Selling Price               100,000
Cost                        (60,000)     40,000
Taxable Income

Tax Liability
                    0.15     50,000
                    0.25     25,000
                    0.34    696,000
                    0.05    235,000

				
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