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Suppose a taxpayer invests $100,000 in a partnership. The taxpayer faces a personal tax of 70% and a tax rate on capital gains of 28%. In this year, the partnership spends the entire $10,000 on research, which the taxpayer can claim as a deduction against her other income. In the second year, the partnership sells the developed technology, and the taxpayer’s share of the sale price is $50,000, which is taxed as a capital gain. (Ignore the time value of money in your answer).
a) What is the pretax rate of return to the taxpayer?
b) What is the after-tax of return to the taxpayer?
We will spend another week discussing bonds and interest rates. What is the relationship between interest rate level and bond price?
If I make equal annual end-of-year deposits into an account that earns 7 percent annual interest, how large must this deposit be?
What is the project net cash flow (OCF) for year 2 and what is the book value at the end of year 3 - What is the discounted payback for this project - Construct income statement and what best describes operating profit margin.
Pierce Furnishings generated $2 million in sales during 2012, and its year-end total assets were $1.4 million. Also, at year-end 2012, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,..
Virus Stopper Inc., a supplier of computer safeguard systems, uses a cost of capital of 12 percent to evaluate average-risk projects, and it adds or subtracts 2 percentage points to evaluate projects of more or less risk. Which project should Virus S..
Your company has made regular payments to an employee pension plan in the past. Since the plan is now overfunded, future payments will be delayed. No payments are planned today, or at the end of years 1 through 3. A payment of $500,000 will be made a..
Best's product manager continues to perform well in the market. However, a competing product is coming on strong and is looking to take over as the market share leader in the segment. Without sacrificing contribution margin, what can the Best product..
You have been asked to value a company using the FCF method. The free cash flow last year for the company was $20 million. Free cash flow for next year expected to be -$20 million. What is the value you get for the operations of the firm? The firm ha..
Which of the following would tend to reduce the weighted average cost of capital for a firm? Margo Lawrence is employed full-time as a paralegal, but on evenings and weekends, she bakes wedding cakes.
The bond has a current yield of 7.5 percent. What is the bond’s yield to maturity?
Suppose the value of the house goes down by 15% right after your purchase. What is your return on equity?
Soundsonic Inc.'s perpetual preferred stock sells for $39.45 per share and it pay $7.50 in annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the price paid by investors. What is the compan..
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