Chapter 6 Solutions for Home Tasks Fundamentals of Corporate Finance Fifth Edition, Ross, Westerfield, Jordan

...

Income taxes:

- 0,15 * 50 000 = 7 500

- 0,25 * (75 000 – 50 000) = 6 250

- 0,34 * (100 000 – 75 000) = 8 500

- 0,39 * (335 000 – 100 000) = 91 650

- 0, 34 * (1 000 000 – 335 000) = 226 100

Total income tax (Income) = 1 + 2 + 3 + 4 + 5 = 340 000

Both firms will have a marginal tax rate = 34%, so both will pay 3 400.

Task 21

- Income Statement

Sales = 6 100

Costs of goods sold = 4 500

Depreciation expense = 800

EBIT = 800

Interest expense = 100

Taxable income = EBIT – Interest expense = 700

Tax rate = 34%

Taxes = 238

Net income = 462

Dividends paid = 150

- Operating cash flow = EBIT + Depreciation – Taxes = 1 362

- Cash flow from assets.

Change in Net working Capital = NWC1-NWC0 = (CA1 – CL1) - (CA0 – CL0) = (1 550 - 900) - (1 000 - 750) = 650 – 250 = 400

Net Capital Spending = Net Fixed Assets1 - Net Fixed Assets0 + Depreciation = 4 200 – 4 000 + 800 = 1 000

Cash Flow Assets = OCF - Change in Net working Capital - Net Capital Spending = 1 362 – 400 – 1 000 = -38

Possible.

- Cash flow to creditors = Interest – Net new borrowing = 100 – 0 = 100

Cash flow to stockholders = Cash flow for assets - Cash flow to creditors = - 38 – 100 = -138

Net new equity = 150 – (-138) = 288