Explain Why Each Of The Following Situation Is An Agency Problem And What Costs To The Firm

a. Determine Jane's total cash inflows and cash outflows.

b. Determine the net cash flow for the month of August.

c. If there is a shortage, what are a few options open to Jane?

d. If there is a surplus, what would be a prudent strategy for her to follow?

PI -5 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 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 secret talks with a competitor about the possibility of a merger in which (s)he 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.

PI-6 Corporate taxes Tantor Supply, Inc., is a small corporation acting as the exclusive distributor of a major line of sporting goods. During 2009 the firm earned $92,500 before taxes.

a. Calculate the firm's tax liability using the corporate tax rate schedule given in Table 1.4.

b. How much are Tantor Supply's 2009 after-tax earnings?

c. What was 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?

1UPJ Average corporate tax rates Using the corporate tax rate schedule given in Table 1.4, perform the following:

a. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1.5 million; $10 million; and $20 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?

USI Marginal corporate tax'rates Using the corporate tax rate schedule given in Table 1.4, perform the following:

a. Find the marginal tax rate for the following levels of corporate earnings before taxes: $15,000; $60,000; $90,000; $200,000; $400,000; $1 million; and

$20 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.

Q5I Interest versus dividend income During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from interest on bonds it held in Zig Manufacturing and received $20,000 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?

Interest versus dividend expense Michaels Corporation expects earnings before interest and taxes to be $40,000 for this period. Assuming an ordinary tax rate of 40%, 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 $10,000 in interest.

b. The firm pays $10,000 in preferred stock dividends.

Capital gains taxes Perkins Manufacturing is considering the sale of two nondepreciable assets, X and Y. Asset X was purchased for $2,000 and will be sold today for $2,250. Asset Y was purchased for $30,000 and will be sold today for $35,000. 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.

Capital gains taxes The following table contains purchase and sale prices for the nondepreciable capital assets of a major corporation. The firm paid taxes of 40% on capital gains.

Asset Purchase pricc' ' Sale price'"
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Responses

  • JOSEPH
    How much are Tantor Supple's 201o aftertax earnings?
    7 years ago
  • Batilda
    How much are Tantor Supply's 2009 aftertax earnings?
    7 years ago
  • valdemar
    How much are tantor supply's 2010 aftertax earnings?
    7 years ago
  • lorenzo
    What is the firm's tax liability for the year?
    7 years ago
  • wiktoria black
    What is the firm’s marginal tax rate, based on your findings in part a?
    7 years ago
  • semrawit
    How to deal with padding cost estimates to show short term efficiency gains?
    7 years ago
  • AMANUEL ELIAS
    How to plot the average tax measured on the y axis?
    7 years ago
  • JANNE
    What generalization can be made concerning the average tax rates and the pretax income levels?
    7 years ago
  • robert
    What would the tax obligation be for a corporate with pretax earnings of $60,000?
    6 years ago
  • Habte Mustafa
    What would the tax obligation be for a corporatiom with pretax earnings of $60,000?
    6 years ago
  • Stella Siciliani
    What would the tax obligation be for a corporation with pretax earnings of?
    6 years ago

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