Liability comparisons    Merideth Harper has invested​ $25,000 in Southwest Development Company. The firm has recently declared bankruptcy and has​ $60,000 in unpaid debts. Explain the nature of​ payments, if​ any, by Ms. Harper in each of the following situations. a.   Southwest Development Company is a sole proprietorship owned by Ms. Harper. b.   Southwest Development Company is a​ 50-50 partnership of Ms. Harper and Christopher Black. c.   Southwest Development Company is a corporation . a.   If Southwest Development Company is a sole proprietorship owned by Ms.​ Harper,:  ​(Select the best answer​ below.) A. Ms. Harper has limited​ liability, which guarantees that she cannot lose more than the​ $25,000 she invested. B. Ms. Harper has unlimited​ liability, which means creditors can claim against her personal assets. C. Ms. Harper has unlimited​ liability, which means creditors can only claim against the​ $25,000 she invested. D. Ms. Harper has limited​ liability, which is the amount of​ $60,000 in unpaid debts Q2: As chief financial​ officer, it is your responsibility to weigh financial pros and cons of the many investment opportunities developed by your​ company's research and development division. You are currently evaluating two competing​ 15-year projects that differ in several ways. Relative to your​ firm's current​ EPS, the first project is expected to generate​ above-average EPS during the first 5​ years, average EPS during the second 5​ years,and then​ below-average EPS in the last 5 years. The second project is expected to generate​ below-average EPS during the first 5​ years, average EPS in the second 5​ years, and then​ well-above-average EPS in the last 5 years. Is the choice obvious if you expect that the second investment will result in a larger overall earnings​ increase? Given the goal of the​ firm, what issues will you consider before making a final​ decision? Is the choice obvious if you expect that the second investment will result in a larger overall earnings​ increase?  ​(Select the best answer​ below.) A. No. The firm can earn a return on funds it​ receives, therefore the receipt of funds is preferred sooner rather than later. The first project generates an​ above-average return in the first 5​ years, while the second project generates​ below-average returns in the same period. B. No. The firm cannot earn a return on funds it​ receives, therefore the receipt of​ funds, whether sooner or​ later, will not affect the choice. C. Yes. The firm can earn a return on funds it​ receives, therefore the receipt of funds is preferred later rather than sooner. The first project generates a​ below-average return in the last 5​ years, while the second project generates ​ well-above-average returns in the same period. D. Yes. The firm can earn a return on funds it​ receives, therefore, the project that earns the larger overall earnings increase is the best choice Q3: Identifying agency​ problems, costs, and resolutions    Explain why each of the following situations is an agency problem and what costs to the firm might result from it. Suggest how the problem might be dealt with short of firing the​ individual(s) involved. a.   The front desk receptionist routinely takes an extra 20 minutes of lunch time to run personal errands. b.   Division managers are padding cost estimates so as to show​ short-term efficiency gains when the costs come in lower than the estimates. c.   The​ firm's chief executive officer has had secret talks with a competitor about the possibility of a merger in which she would become the CEO of the combined firms. d.   A branch manager lays off experienced​ full-time employees and staffs customer service positions with​ part-time or temporary workers to lower employment costs and raise this​ year's branch profit. The​ manager's bonus is based on profitability. a.   The front desk receptionist routinely takes an extra 20 minutes of lunch time to run personal errands. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this​ case?  ​(Choose all correct​ responses.) A. The front desk receptionist is being compensated for unproductive time. B. The company could install a time clock that would result in either​ (1) her returning on time or​ (2) reducing the cost to the firm. C. The management could bring the situation to the attention of the receptionist. The extra emphasis on meeting her duties may be all that is required. D. The company should do nothing. Any attempt to solve the problem would likely create an unhappy employee and only make the situation worse Q4: What does it mean to say that individuals as a group are net suppliers of funds for financial​ institutions? What do you think the consequences might be in financial markets if individuals consumed more of their incomes and thereby reduced the supply of funds available to financial​ institutions? What does it mean to say that individuals as a group are net suppliers of funds for financial​ institutions?  ​(Select the best answer​ below.) A. ​Individuals, as a​ whole, spend less than they make. The excess is​ invested, making it available for businesses and goverments. B. ​Individuals, as a​ whole, spend more than they make. The excess is provided for by businesses. C. ​Individuals, as a​ whole, spend more than they make. The excess is provided for by financial institutions. D. ​Individuals, as a​ whole, spend less than they make. The amount that they spend is made available to businesses through financial institutions. Q5: Corporate taxes    Tantor​ Supply, Inc., is a small corporation acting as the exclusive distributor of a major line of sporting goods. During 2013 the firm earned $ 90 comma 400 $90,400 before taxes. a. Calculate the​ firm's tax liability using the corporate tax rate schedule given in the following Table LOADING... . b. How much are Tantor​ Supply's 2013​ after-tax earnings? c. What is the​ firm's average tax​ rate, based on your findings in part ​( a ​)​? d. What is the​ firm's marginal tax​ rate, based on your findings in part ​( a ​)​? a. The​ firm's tax liability is ​$ nothing . ​(Round to the nearest​ dollar.) Q6: Average corporate tax rates   Using the corporate tax rate schedule given here LOADING... ​, perform the​ following: a. Calculate the tax​ liability, after-tax​ earnings, and average tax rates for the following levels of corporate earnings before​ taxes: $ 7 comma 600 $7,600​; $ 80 comma 600 $80,600​; $ 300 comma 000 $300,000​; $ 495 comma 000 $495,000​; $ 1.8 $1.8 ​million; $ 9.1 $9.1 ​million; and $ 19.9 $19.9 million. b. Plot the average tax rates​ (measured on the y ​ axis) against the pretax income levels​ (measured on the x ​ axis). What generalization can be made concerning the relationship between these​ variables? a. Find the marginal tax rate for the following levels of corporate earnings before​ taxes: $ 7 comma 600 $7,600​; $ 80 comma 600 $80,600​; $ 300 comma 000 $300,000​; $ 495 comma 000 $495,000​; $ 1 comma 800 comma 000 $1,800,000​; $ 9.1 $9.1 ​million; and $ 19.9 $19.9 million. The tax liability for earnings before taxes of $ 7 comma 600 $7,600 is ​$ nothing . ​(Round to the nearest​ dollar.) Q7: Marginal corporate tax rates   Using the corporate tax rate schedule given here LOADING... ​, perform the​ following: a. Find the marginal tax rate for the following levels of corporate earnings before​ taxes: $ 15 comma 700 $15,700​; $ 60 comma 900 $60,900​; $ 88 comma 300 $88,300​; $ 205 comma 000 $205,000​; $ 397 comma 000 $397,000​; $ 1.8 $1.8 ​million; and $ 20.3 $20.3 million. b. Plot the marginal tax rates​ (measured on the y ​ axis) against the pretax income levels​ (measured on the x ​ axis). Explain the relationship between these variables. a. The marginal tax rate for earnings before taxes of $ 15 comma 700 $15,700 is nothing ​%. ​(Round to the nearest​ integer.) Q8: Interest versus dividend income   During the year just​ ended, Shering​ Distributors, Inc., had pretax earnings from operations of $ 500 comma 000 $500,000. In​ addition, during the year it received $ 30 comma 000 $30,000 in income from interest on bonds it held in Zig Manufacturing and received $ 30,000 $30,000 in income from dividends on its 5 % 5% common stock holding in Tank​ Industries, Inc. Shering is in the 34 % 34% tax bracket and is eligible for a 70 % 70% dividend exclusion on its Tank Industries stock. a. Calculate the​ firm's tax on its operating earnings only. b. Find the tax and the​ after-tax amount attributable to the interest income from Zig Manufacturing bonds. c. Find the tax and the​ after-tax amount attributable to the dividend income from the Tank​ Industries, Inc., common stock. d. ​ Compare, contrast, and discuss the​ after-tax amounts resulting from the interest income and dividend income calculated in parts b. and c. e. What is the​ firm's total tax liability for the​ year? a. The tax on operating earnings is ​$ nothing . ​(Round to the nearest​ dollar.) Q9: Interest versus dividend expense    Michaels Corporation expects earnings before interest and taxes to be $ 55,000 $55,000 for this period. Assuming an ordinary tax rate of 34 % 34%​, compute the​ firm's earnings after taxes and earnings available for common stockholders​ (earnings after taxes and preferred stock​ dividends, if​ any) under the following​ conditions: a. The firm pays $ 12,600 $12,600 in interest. b. The firm pays $ 12,600 $12,600 in preferred stock dividends. a. Complete the fragment of Michaels​ Corporation's income statement below to compute the​ firm's earnings after taxes and earnings available for common stockholders under condition ​( a ​).  ​(Round to the nearest​ dollar.) EBIT $ Less: Interest expense Earnings before taxes $ Less: Taxes (34%) Earnings after taxes $ Less: Preferred dividends Earnings available for common stockholders $ Q10: Capital gains taxes   Perkins Manufacturing is considering the sale of two nondepreciable​ assets, X and Y. Asset X was purchased for $ 1 comma 820 $1,820 and will be sold today for $ 2 comma 320 $2,320. Asset Y was purchased for $ 29 comma 000 $29,000 and will be sold today for $ 34,200 $34,200. The firm is subject to a 40 % 40% tax rate on capital gains. a. Calculate the amount of capital​ gain, if​ any, realized on each of the assets. b. Calculate the tax on the sale of each asset. a. The capital gain realized on asset X is ​$ nothing . ​(Round to the nearest​ dollar.)
