saint leo mgt325 assignment 1 latest 2016 june

assignment 1 

1) 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 unlimited? liability, which means creditors can claim against her personal assets.

B. Ms. Harper has limited? liability, which is the amount of? $60,000 in unpaid debts.

C. Ms. Harper has limited? liability, which guarantees that she cannot lose more than the? $25,000 she invested.

D. Ms. Harper has unlimited? liability, which means creditors can only claim against the? $25,000 she invested.

b. If Southwest Development Company is a? 50-50 partnership of Ms. Harper and Christopher? Black,:???(Select the best answer? below.)

A. Ms. Harper has unlimited? liability, which means creditors can only claim against the? $25,000 she invested.

B. Ms. Harper has unlimited? liability, which means creditors can claim against her personal assets.

C. Ms. Harper has limited? liability, which guarantees that she cannot lose more than the? $25,000 she invested.

D. Ms. Harper has limited? liability, which is? $30,000, or half of the? $60,000 in unpaid debts.

c. If Southwest Development Company is a? corporation,:???(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 only claim against the? $25,000 she invested.

C. Ms. Harper has unlimited? liability, which means creditors can claim against her personal assets.

D. Ms. Harper has limited? liability, which is the amount of? $60,000 in unpaid debts.

2) 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 cannot earn a return on funds it? receives, therefore the receipt of? funds, whether sooner or? later, will not affect the choice.

B. 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.

C. 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.

D. 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.

Issues you should consider before making a final decision? are:??(Select the best answer? below.)

A. ?timing, cash? flows, and stakeholders.

B. ?timing, risk, and stakeholders.

C. ?timing, cash? flows, and risk.

D. cash? flows, risk, and stakeholders.

3) 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.

b. Division managers are padding cost estimates so as to show? short-term efficiency gains when the costs come in lower than the estimates. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this? case????(Choose all correct? responses.)

A. One agency cost is that money budgeted to cover the project proposal is not available to fund other projects that may help to increase shareholder wealth.

B. There is no agency cost in this problem.

C. One way to reduce the agency cost is to base the reward system on how close the? employee's estimates come to the actual cost rather than having them come in below cost.

D. A reward system based on increasing shareholder wealth might motivate the division managers to make more accurate estimates in order to be able to take on additional profitable projects.

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. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this? case????(Choose all correct? responses.)

A. One agency cost is that the CEO may negotiate a deal with the merging competitor that is extremely beneficial to herself at the expense of selling the firm for less than its fair market value.

B. A good way to reduce the loss of shareholder wealth would be to open the firm up for purchase bids from other firms once the manager makes it known that the firm is willing to merge.

C. An open bidding process may encourage other firms to offer a price closer to the fair market value of the firm.

D. There is no agency cost. Secrecy must be maintained in order to get the best possible price for the firm.

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. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this? case????(Choose all correct? responses.)

A. Generally? part-time or temporary workers are not as productive as? full-time employees. These workers have not been on the job as long to increase their work efficiency.

B. This manager is getting rid of good employees to increase? short-term profits.

C. One approach to reducing the problem would be to give the manager performance share if certain stated goals are met.

D. Implementing a stock incentive plan tying management compensation to share price would also encourage the manager to retain quality employees.

Question is complete.

4) 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 financial institutions.

C. ?Individuals, as a? whole, spend more than they make. The excess is provided for by businesses.

D. ?Individuals, as a? whole, spend less than they make. The amount that they spend is made available to businesses through 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????(Select the best answers from the? drop-down menus.)

If individuals consume? more, ____________ dollars will be available for investment. This would

____________ the amount of money available for new projects and drive ____ the required return? (i.e., required return of investors to buy? bonds). Over? time, employment,? salaries, and gross domestic product would _________.

5) 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 $ 94 comma 600$94,600 before taxes.

a. Calculate the? firm's tax liability using the corporate tax rate schedule given in the following Table

Corporate Tax Rate Schedule
		Tax calculation
Range of taxable income	Base tax	plus+	?(Marginal ratetimes×amount over base? bracket)
$ 0 to	$50,000	$0	plus+	?(15?%	×	amount over	$0?)
50,000 to	75,000	7,500	plus+	?(25?%	×	amount over	50,000?)
75,000 to	100,000	13,750	plus+	?(34?%	×	amount over	75,000?)
100,000 to	335,000	22,250	plus+	?(39?%	×	amount over	100,000?)
335,000 to	10,000,000	113,900	plus+	?(34?%	×	amount over	335,000?)
10,000,000 to	15,000,000	3,400,000	plus+	?(35?%	×	amount over	10,000,000?)
15,000,000 to	18,333,333	5,150,000	plus+	?(38?%	×	amount over	15,000,000?)
Over8,333,333		6,416,667	plus+	?(35?%	×	amount over	18,333,333?)

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 ?$________. ?(Round to the nearest? dollar.)

b. The? firm's after-tax earnings is ?$______. ?(Round to the nearest? dollar.)

c. The? firm's average tax rate is ______% ?(Round to one decimal? place.)

d. The? firm's marginal tax rate is ___?%. ?(Round to the nearest? integer.)

6) Average corporate tax rates Using the corporate tax rate schedule given here perform the? following:

Corporate Tax Rate Schedule
		Tax calculation
Range of taxable income	Base tax	plus+	?(Marginal ratetimes×amount over base? bracket)
$0 to	$50,000	$0	plus+	?(15?%	×	amount over	$0?)
50,000 to	75,000	7,500	plus+	?(25?%	×	amount over	50,000?)
75,000 to	100,000	13,750	plus+	?(34?%	×	amount over	75,000?)
100,000 to	335,000	22,250	plus+	?(39?%	×	amount over	100,000?)
335,000 to	10,000,000	113,900	plus+	?(34?%	×	amount over	335,000?)
10,000,000 to	15,000,000	3,400,000	plus+	?(35?%	×	amount over	10,000,000?)
15,000,000 to	18,333,333	5,150,000	plus+	?(38?%	×	amount over	15,000,000?)
Over18,333,333		6,416,667	plus+	?(35?%	×	amount over	18,333,333?)

a. Calculate the tax? liability, after-tax? earnings, and average tax rates for the following levels of corporate earnings before? taxes: $10,500?; $79,500?; $298,000?; $505,000?; $1.1 ?million; $9.1 ?million; and $20.5 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: $10,500?; $79,500?; $298,000?; $505,000?; $1,100,000?; $9.1 ?million; and $20.5 million.

The tax liability for earnings before taxes of $10,500 is _________. ?(Round to the nearest? dollar.)

The? after-tax earnings on $10,500 are _______. ?(Round to the nearest? dollar.)

The average tax rate for the $10,500 in pretax earnings is ______ ?(Round to one decimal? place.)

The tax liability for earnings before taxes of $79,500 is ______. ?(Round to the nearest? dollar.)

The? after-tax earnings on $79,500 are _________. ?(Round to the nearest? dollar.)

The average tax rate for the $79,500 in pretax earnings is _______ ?(Round to one decimal? place.)

The tax liability for earnings before taxes of $298,000 is ________. ?(Round to the nearest? dollar.)

The? after-tax earnings on $298,000 are ___________. ?(Round to the nearest? dollar.)

The average tax rate for the $298,000 in pretax earnings is _____ ?(Round to one decimal? place.)

The tax liability for earnings before taxes of $505,000 is ________. ?(Round to the nearest? dollar.)

The? after-tax earnings on $505,000 are ________. ?(Round to the nearest? dollar.)

The average tax rate for the $505,000 in pretax earnings is _______ ?(Round to one decimal? place.)

The tax liability for earnings before taxes of $1.1 million is ________. ?(Round to the nearest? dollar.)

The? after-tax earnings on $1.1 million are ___________. ?(Round to the nearest? dollar.)

The average tax rate for the $ 1.1 million in pretax earnings is _____ ?(Round to one decimal? place.)

The tax liability for earnings before taxes of $9.1 million is _________. ?(Round to the nearest? dollar.)

The? after-tax earnings on $9.1 million are ?$_______. ?(Round to the nearest? dollar.)

Question is complete. Tap on the red indicators to see incorrect answers.

7) Marginal corporate tax rates Using the corporate tax rate schedule given here perform the? following:

Corporate Tax Rate Schedule
		Tax calculation
Range of taxable income	Base tax	plus+	?(Marginal ratetimes×amount over base? bracket)
$0 to	$50,000	$0	plus+	?(15?%	×	amount over	$0?)
50,000 to	75,000	7,500	plus+	?(25?%	×	amount over	50,000?)
75,000 to	100,000	13,750	plus+	?(34?%	×	amount over	75,000?)
100,000 to	335,000	22,250	plus+	?(39?%	×	amount over	100,000?)
335,000 to	10,000,000	113,900	plus+	?(34?%	×	amount over	335,000?)
10,000,000 to	15,000,000	3,400,000	plus+	?(35?%	×	amount over	10,000,000?)
15,000,000 to	18,333,333	5,150,000	plus+	?(38?%	×	amount over	15,000,000?)
Over18,333,333		6,416,667	plus+	?(35?%	×	amount over	18,333,333?)

a. Find the marginal tax rate for the following levels of corporate earnings before? taxes: $15,500?; $58,700?; $88,500?; $195,000?; $397,000?; $1.5 ?million; and $20.1 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 $15,500 is ________?%. ?(Round to the nearest? integer.)

8) Interest versus dividend income During the year just? ended, Shering? Distributors, Inc., had pretax earnings from operations of $482,000. In? addition, during the year it received $30,000 in income from interest on bonds it held in Zig Manufacturing and received $30,000 in income from dividends on its 5% common stock holding in Tank? Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 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 ?$__________. ?(Round to the nearest? dollar.)

b. Complete the table below to compute the tax and the? after-tax amount attributable to the interest? income:???(Round to the nearest? dollar.)

Interest Income
Before-tax amount	$
Less: Applicable exclusion
Taxable amount	$
Tax (40%)
After-tax amount	$

9) Interest versus dividend expense Michaels Corporation expects earnings before interest and taxes to be $48,000 for this period. Assuming an ordinary tax rate of 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 $11,600 in interest.

b. The firm pays $11,600 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	$

b. 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 ?(b?).???(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	$

10) Capital gains taxes?Perkins Manufacturing is considering the sale of two non depreciable? assets, X and Y. Asset X was purchased for $1,990 and will be sold today for $2,250. Asset Y was purchased for $29,100 and will be sold today for $34,900. The firm is subject to a 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 ?________. ?(Round to the nearest? dollar.)

The capital gain realized on asset Y is ?________. ?(Round to the nearest? dollar.)

b. The tax on the sale of asset X is ?_________. ?(Round to the nearest? dollar.)

The tax on the sale of asset Y is ________. ?(Round to the nearest? dollar.)