Please show workings for each question. 1. Salinger Software was founded in 2015. The company lost money each of its first three years, but was able to turn a profit in 2018. Salinger's operating...


Please show workings for each question.


1. Salinger Software was founded in 2015. The company lost money each of its first three years, but was able to turn a profit in 2018. Salinger's operating income (EBIT) for its first four years of operations is reported below.



























YearEBIT
2015-$100,000,000
2016-$150,000,000
2017-$100,000,000
2018$700,000,000

The company has no debt, so operating income equals earnings before taxes. The corporate tax rate has remained constant at 35%. Assume that the company took full advantage of the carry-back, carry-forward provisions in the Tax Code, and assume that the current provisions were applicable in 2015. How much tax did the company pay in 2018?






























a. $132,300,000










b. $121,275,000










c. $101,675,000










d. $135,975,000










e. $122,500,000








2. Mantle Corporation is considering two equally risky investments:

















∙         A $5,000 investment in preferred stock that yields 6.75%.
∙         A $5,000 investment in a corporate bond that yields 10.00%.


What is the breakeven corporate tax rate that makes the company indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.)




























a. 50.13%










b. 40.75%










c. 46.87%










d. 37.08%










e. 34.23%









3. Wie Corp's sales last year were $280,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? Do not round your intermediate calculations.



























a. $238,333










b. $193,050










c. $178,750










d. $250,250









e. $259,783


Jun 02, 2022
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