Question Details

Calculate Lintner's total tax liability using the corporate tax 


1)	Russell Securities has $100 million in total assets and its corporate tax rate is 40%. The company recently reported that its basic earning power (BEP) ratio was 15% and its return on assets (ROA) was 9%. What was the company's interest expense?
A.	$                0
B.	$  2,000,000
C.	$  6,000,000
D.	$15,000,000
E.	$18,000,000


	2)	Lintner Beverage Corp. reported the following information from their financial statements:

Operating income (EBIT)	 $13.2 million.
Interest payments on long-term debt	 $1.75 million.
Dividend income	 $1 million.

Calculate Lintner's total tax liability using the corporate tax schedule below:

	Tax on Base	Percentage on   
Taxable Income 	   of Bracket	Excess above Base   
$0-$50,000	$              0	15%
$50,000-$75,000	7,500	25   
$75,000-$100,000	13,750	34   
$100,000-$335,000	22,250	39   
$335,000-$10,000,000	113,900	34   
$10,000,000-$15,000,000	3,400,000	35   
$15,000,000-$18,333,333	5,150,000	38   
Over $18,333,333	6,416,667	35   

A.	$3,995,000
B.	$4,012,500
C.	$4,233,000
D.	$4,257,500
E.	$4,653,000


	3)	A 7-year municipal bond yields 4.8%. Your marginal tax rate (including state and federal taxes) is 27%. What interest rate on a 7-year corporate bond of equal risk would provide you with the same after-tax return?
A.	  3.46%
B.	  4.80%
C.	  6.14%
D.	  6.58%
E.	17.14%


	4)	Last year Kelly Inc had $750,000 of sales, and it had $230,000 of fixed assets that were used at 70% of capacity. By how much could Kelly's sales increase before it would have to increase its fixed assets?
A.	$309,124
B.	$314,677
C.	$321,429
D.	$331,469
E.	$346,964


	5)	Bullock Inc's sales were $500,000 during 2005, and its year-end assets were $750,000. For 2006, sales are expected to grow by 30%, and since Bullock is operating at full capacity, its assets must grow in proportion to sales. Its 2005 current liabilities consisted of $40,000 of accounts payable, $50,000 of notes payable, and $30,000 of accruals. Its after-tax profit margin is forecasted to be 5%, and the firm plans to pay out 60% of its earnings. Based on the AFN equation, what is the firm's additional funds needed (AFN) for 2006?
A.	$177,000
B.	$184,000
C.	$191,000
D.	$198,000
E.	$205,000



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