NOPAT Answer: d Diff: E N . What is BBC’s net operating profit after taxes (NOPAT)?a. $1,000,000b. $1,200,000c. $1,250,000d. $1,500,000e. $1,550,000Free cash flow Answer: b Diff: E N . What is BBC’s free cash flow?a. $ 0b. $ 500,000c. $ 900,000d. $1,000,000e. $1,500,000 Web Appendix 2AMultiple Choice: ConceptualEasy:Personal taxes Answer: c Diff: E2A- . Current tax laws have which of the following effects?a. Favor dividends because there are no capital gains taxes on dividends.b. Do not favor capital gains because the tax must be paid as the value of the stock increases, whether or not the stock is sold.c. Favor capital gains because the rate generally applicable to long-term capital gains is 20 percent and the tax does not have to be paid until the stock is sold.d. Do not favor dividends or capital gains for most people because different people are in different tax brackets.e. Favor dividends since dividends are tax-deductible for the paying corporation whereas retained earnings, which produce capital gains, are not tax-deductible.Taxes Answer: b Diff: E2A- . Which of the following statements is most correct?a. Corporations are allowed to exclude 70 percent of their interest income from corporate taxes. b. Corporations are allowed to exclude 70 percent of their dividend income from corporate taxes.c. Individuals pay taxes on only 30 percent of the income realized from municipal bonds.d. Statements a and b are correct.e. None of the statements above is correct.Taxes Answer: b Diff: E2A- . Which of the following statements is most correct?a. 70 percent of a corporation’s interest income is excluded from corporate income taxes.b. 70 percent of a corporation’s dividend income is excluded from corporate income taxes.c. A municipal bond will generally trade at a higher yield than a corporate bond of equal risk.d. All of the statements above are correct.e. Statements b and c are correct. Carry-back, carry-forward Answer: b Diff: E2A- . A loss incurred by a corporationa. Must be carried forward unless the company has had 2 loss years in a row.b. Can be carried back 2 years, then carried forward up to 20 years following the loss.c. Can be carried back 5 years and forward 3 years.d. Cannot be used to reduce taxes in other years except with special permission from the IRS.e. Can be carried back 3 years or forward 10 years, whichever is more advantageous to the firm.Miscellaneous concepts Answer: c Diff: E2A- . Which of the following statements is most correct?a. Retained earnings, as reported on the balance sheet, represents the amount of cash a company has available to pay out as dividends to shareholders.b. 70 percent of the interest received by corporations is excluded from taxable income.c. 70 percent of the dividends received by corporations is excluded from taxable income.d. None of the statements above is correct.e. Statements a and c are correct.Multiple Choice: ProblemsEasy:Corporate taxes Answer: b Diff: E2A- . Your corporation has the following cash flows:Operating income $250,000Interest received 10,000Interest paid 45,000Dividends received 20,000Dividends paid 50,000If the applicable income tax rate is 40 percent (federal and state combined), and if 70 percent of dividends received are exempt from taxes, what is the corporation’s tax liability?a. $ 74,000b. $ 88,400c. $ 91,600d. $100,000e. $106,500
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