3 ~~» Dated: WEEK 2 » NE aenian.: Utaxableincome) ~ veto $25,000. — 157. TE 83,700 ~ B25) cdl “asd eeo ee tas 29, A 407. = $50,001 - $75,000 — 307 Noy 32500 ante | 978,001 ~ $100,000 = 407 Share + Sver 100,000 = 46, = — Taxable ty 88,0 i come 1000 exemple Nod | -— @ 25000 x = 3,750 o 25,000 x =. 41500 @ 25,000. x, 307% = 7,500 @ 13,000 X 40% = 5,200 26,950 bax Wabiiky average tax (ATR) = 26,950 x00 = §23-80'/, vate STOO) double taxation —> company pays the tax and then the amount is distributed among shareholders. then, the shavcholders pay bar. limiked liability concept. you ave different and company is different Taxable Income 107, 500 exam ple No.2 oO 25/000 18%. = 3,750 wale BATIAa @ 25,000 x 187 4,500 ® 25,000 x S0/. = 7,500 ® 25,000 x 407. = 10,000 © 7500 x 467. = 3,450 24,200 _ bax Nability ATR = 29/200 K100- 27.16' 107,500Dated: qavgina) tax vate, what tax vate will be applicable if you eavn every addifio dollay now. bax vale that will be applied to the next dollar of income, fov example, if income i= 107,500, the MIR would be 46%. iF income is 75/000, the mie would be 40%. QL A company bas an operating income of $200,000, P&Ys interest charges of $60,000 and pays dividend of $40,000. what is the taxable income and fax tiabilily given abavein the tax schedule. Taxable Income + $ 200,000 (operating income) = _$ 50,000 Cinteres t) 11601000 25000 x 157. = 3750 3 25/000 x (87. = 4600 25)000_ x 307. = 7500 ee 15,750 ATR = 15/750 | x 100 = 105% 150/000 * dividend is paid aftey net income operating profit i= EBIT when there is no Dtherincome EBIT is also operating iname.Multiple Step income Statement i tis iz net ales betove 's 91085 Sales (207000 Ceri deta pie emeet Less: Coshef geod= =old (cocs) $0,000 (eecs is the expense (maybe: Gross Profit Hooco = Lawes gross nesin Less: Operating expenses Selling expense x net ales Is revenue Mainlevance expense i iShetnoa seventy adend Advertising expense x eens Sdling expense x Depre dal x 20/000 Operating Profit 20,000 - AF there is ne othe’ ingame! then fidd: Other Income 41000 apeibea CeCe es | Eayning before Income gi Tax! CEBIT) 24,000 — IL Less: Interest Expense 6,000 eagek fines inkerest Earning before bax (8,000 = Te eer = Beet Less: Tax ' 4,000 ae Earning after tax / Netincome Waro0 0H aT ANE WOON oe ated ieiatan, drops, inierest de es (ea— ‘ Dated: which yield 5% ov AT&T preferved stock of dividend vate 67. The company’s tax yate is 35%. 787. of the dividend yeceived ave bax exempted. Assuming thak- all investments ave equally visky. ‘Skate of Florida Moni Bonds BY. ATET Prefered Stock a Be = bax Free = 167. tax exempled 10/060 %) 7-51. =) 750! 19/0000 BY. = [500] lojeo0 x 6Y.= 600 tess: tax 5202-5 ¥ RY. exempted = 420 vetuyo. (u87-5) |v oy _xebova 180 less:tax 63. Rok foage’ na 487-5 x 100 -(us75y] 500 x too = 4204 wi = (S37) 10,000 Par 10,000 peal alae 587 x 100 =( 537). Decision: ATHT Preferred stock isthe most profitable | 101000 ve burn. with$S37 vetorn and 6-37°)-202. nARS ‘ ( Dated: Qs_A company’s taxable income 15 $365xB000 from operations. aftey all operaking costs but before i) interest charges of 450,000 fi) dividend veceived of $15,000 ; Wi) dividend paid of $25,000 r W income taxes ( : [ What is the Firm?s income tax Wabillty and i= after tax income? a 2) 707. exempt dividend ad 2 tax schedule 1 upte 100,000 22% mf move than “3g. 1 se Taxable Inwme + $ 26 erat 660 365/000 4 Less: Interest § ©3000 - 50,000 ; 3 seguro 34%'51;000 exempted A Add: Dividend Reo $ | wooo +. 15,000 a aie FO° ! SEGHEE OOO $ 330,000 ‘ Ue f Taxable Income : 330/000 mah — feieos aa peoo] ‘ » y 100/000 x 22. =°: 22,000 d 219,500 x 397. = | 85,605 f 107,605 tax iebility q i" ( ATR =) 107/605 x10 2. 33.677, Afley Fax Income : 319i E00) ’ TI 319,500 é‘ =e. lo7, 605 é MiRGe S39 Zi), 895 : : - — , ' Holspee! ot E aren csDated: 10-02-2024 WEEK 4 depreciation, interest» tax shields cop . pital 9 2ing when youl centinueus preject in companies, perpectual when you sell an asset, you compare it to the bockvalve he Machine 50/000 ev Balance Zelling less than, BV, i= loss, balancing,modernisation and yeplacement €9: Shezan has mange farms Four conditions of asset treatments: =the proceeds from the sale of old assets ave cubjectto some type of Lax, there ave 4 possibilities a Ghin'! © 2) the aszebis sald for move than i al cost saie © 2) the asset is sold for more than its book value but less than its initial cost to lee © 8) the asset is 2 $o00(30- 20) - 6d,000 - 10600. sales T Doe DeL = Dol x DFL eet = 40%, edEmpavative income stalement at ale $,000 300 one Sales (8/000%30) $240,000 (8/800x 30) $264,000 less: WC (8/000X20) 160/060 (8,800x20) 176,000 Fe 601000 220/000 661000 236,000 EBIT. 20/000 28/000 AEBIT = 28/000 - 20,000 20/000 = 4oy: 7 Less 1 10/000 No1000 EBT 10/000 18/000 less « Tax (4or) 4,000 ' = oa Net income 6/000 renee ANT = 10/80- 6,000 6/000 10807 tee ’ 2 ; af iF tem a 407 4 DE lin 2 joan | iolevpreta hon NTT by 0 1. the Financial and operahng leverage is effeckveUnik sales price = $10 VC pgeronit = $6 2) contribution margin per onit b) conbribotion margin vabio [ anys" mi] Teel FC = $50,000 €)_BE sales in units d) BE salesin dollays conbvibution = P-VC @) sales in units vequived bo achieve eee: 16-% earning before bax of $4,000 = $4 f) salesin units 4 © % an after bax income of $4,000 assuming TR= 407 4 4 50000 + ( 1°°7/1-04) = 14,166 vnits @ contvibuion = CM. 4 | ee Hoy, margin veto ? 16 eines! Fo = 50/000 12, 500 units i , 10 -6 BE, = PxQ = 10x 12,500 = $125,000 Rawle ereeaiiie BE, = 50/0004+4)/000 _ 913/500 wnits eb S fe a lo -6 formuls + $ , @® Sales (131500 x 10) 135,000 141,660. Less: VC (13:500x 6) 81000 84996 FC 501000 131/000 50000 | 13 4,996 eet 4,000 6664 (266646) 5 f) Bt g = 50/000 + (72) YoooG3. FC= $40,000 =P = $10 per unit TR = 4o'/ Interest Expense = $8000 eer year VC = $6 permit i) BEin & asd $ i) cuwent level of produckon 25/000 units, calculate OOL,ODFL& PCL ii) expected Tee of 207% ww) make the compaiikve IS @ 25/00orits and Zo. Tce and prove the effechveness 1) BEg = Fo = 40/000 ___:10,000 units P-v 10-6 BEs = Px BG = 10,000x 10 = $100,000 = A(p-v) © 9257000 (106) eel perT Q(p-v) - FC 25000 (10-6)- 40,000 DEL= A(e-v) - FC _ 25)000( 10-6) - 40,000 N.S Q(P-V) -FC-IC 25,000 (10-6 )- 40,000 - 8003 DCL = DOLXDFL= 1b67xbIS = 4-492 iii) 25/000 x 207, = 5000 ou = 30,000 ynits ene 3 ‘ & SS & « & « s s GR « * 5 * * * | [—. ® Dated: e e 2 a 5 = 251000 30/000 > les (2500010) 250/000 (aaecbhie) 300/000 bess: VC (25000x 6) 150/000. (30,000 x6) 180/000, > ie 401000 190,000 4000 20/000 Operating Frofit 60/000 80/000 eee $000 — 63,008 ape 87000" = 24,882 0,00 28/800 Net tocome. = 28 Beer 3,200 43200 4e#e7o00 so > - ~e A EBIT = 80/000 - 60,000 ‘ 60,000 = a > ~~ ANI = 4eer—zs7e00 431200 - 31,200 2 287000 31,200 ~ = 485-7. = 338-467. 2 sales eEBIT- BB. 47. f DoL DEG 1s) ~ eer? 33.47 vr S8-Aishe\ BY 2 InterpretationContd |Week 12 Quy EBit- $80,000 2.007000 Option 1+ all equity (common) J shave- $20 Option 2: 50/50 100/000 commen eqwiky Tk: 507. 100;000 bond 87. interest Option’3 = 100/000 common equity 00,008 prefered equity 87. dividend -[esir= eps chavt | i 1 ails Allcomequity FEE 60:50 F BIE. | go prek, felt 80/0000 80/000 8,000 4/000 11000 Mig interest Exp - = 8,000 8,000 = eeT 40,0000 712,000 ° $1000 _\t,000 less: TR 40,000. = 36 Ye,000 = 401000 81000 * tat/ NT 4010006 BIO 10 eikojo0o Less: Pref Div = = = = 8,000 81000 a eae 40,000 0 000 ° 32,000 ° a No. of shares ® _10;000 © _ 5,000 @_ 8,000 ‘ ! qa! é : s Eps Q_F4 Ishae © som /chare @ $e4] share, 4 4 @ __260,000 = 10,000 @_t00/000 = 5,000 @ 190,000 = 5/000 ‘ Zo 20 aS c aoe ! 40,000 = $4] share 36,000 _ $bhjshre @ 32000 _ $6.4 /share 12/000 51000 5) 05>Common) SN Woby ernees as cavity based, your financial breakeven is 0 EBIT, Wal you have Financially breakeven eee ae the amount of ¢ Zero in EBIT needed to complete all oblig ahons, yielding an income of 1S Financial breakeven’ Qs. A tyre company with long-term financing oF $1om, consisting entively oF common Stock equity. The company wants bo vase another’ $5m for expansion through lof 3 Possible Financing plans. The company may gain additional Anancing with a new issue of Gall common stock Gi) all debt @ 127. interest (ii) sl_erefened stock with 42/. dividend Fresent annval earnings before interest and taxes (Feit) are $2.5m; bul with expansion ave expected to vise to $2.7m. The income tax vate is 40% and $200,000 shaves oF sormmon stock ave row outstanding. Common stock canbe sald © $50 per share under the G) Financing option Aly I mn [at omen Stock [eahtet a5] (Sela on ecamea tesa eeIT | 1,500,000 1,500,000 | weeeeee| tess: Interest Exp. | - | | 180/000 | aes | BT [1,500,000 [1,320,000 | | 11800,000 less: Tax 600,000 | 528,000 | 00,000 €aT/ NT 400/000 192,000 400/000 | Less : Pref Dividend = - | Provide bo common 400,000 792,000 No.of shaves 300,000 200,000 ae j ers $3 [share $3A6/shave | Ae vise 75000002 i000 \ zi 50= e ¢ Ea x aL € =— Al = T ‘all comreon stock. all debt equity all pieferred equity € = } e BIT 2,100,000 © | 2,160,000 | 600,000 | 2,700/000_| AN6r666 e Le s 1-509 oR less oy ee ee Sa 3 eBT 2,700) 000 | 2, Bb 000 o 2,700/000 | 416,666 e a 7% less: Tax (080,000 =| 880,400 - 1,080,000. 550/000 & ae T GO ter / NI 1, 620/000 | O 1,428/800-_0 1,620,000), 366,666 & Less: Preffeed Dvd = $i ia $50, 000'|. 866.606. § z 261 teideteenrn | 1,620,000 | 0 18,000 | © | _11070/000/| 1? « Z| | q No.of shaves 300/000 | a001000 4 206,000 | e ers $5-4 [share | [ET Dpershare | | g6-26/share| = 6 3/shere. a) € = 5,000/000 = 4100;000 0 =< 1 . Redo | Bee ee | ee ie le oe eaeAin ADI company with LT capitalizahon consisting entively ¢5m in stock, wants ko vaise g2m For the acquisition of equipment by: G) selling common steele (@450cach) GiD_selling bonds C@ 107%, interest) Wi) _prefewed stock issuance ( @ 87. dividend) crotnelEantistS Oi loacoone hares, flonan stock ave outstanding, Projected EGIT is expected at Sim. £, [aan | losdentits | common stock [i_bonds | preferred stock. eit | 1,200,000 1,000,000 1,000,000 less: Interest Exp - leeso eco hick €6T 1,000,000. 800/000. 1,009,000 less: Tax 500/000 400000 500/000 _| EAT/NT 500,000 4001000 | 500,009. | Less: Piefened Divd = = | 160,000 500,000 | 400,000. | | 340,000 I i No. of shares 140, 000 100/000 1001000 ees, $3-5/share $4/ share $3-4/share Cam CamDated: — Plan A” Plan 6 = Bond $8000 @ 9'/ $150,000 @ 10'/ . Prefewed S 000 sharessf $3 4000 shares of $3.5 Common 5. 20,000 shaves 23/000 shaves The company is_ evaluating two Financing plans: assume a 50%. tax vale and an expected EBIT of $400,000. Based onthe EPS choose the plan Lay PLANA PLAN B EBIT 4106, 000 400,000 Less: Nolevest Exe 1,200 | 15,000, eet 342/800 | 385,000 less: Tax 196, 400 | 192,500 Eat/NT. 196, 400) | 192,500 less: Prefevred D 24, 000. 14,000 : trovide to common ened ___172,,4001 | 178,500 No: of shaves | 20,000 | 23,000 Ps | $98.62/shave | $7.76/shave ee et ie | P| al | et] tee ySy >Dated: Week 13 Dividend Policy Cash dividend, capital gain, stock dividend dividend 's paid from veained earings ¥eSideal policy > how much de youwant to riavest? First take care ef investment, then give dividend RES Bi company pays $4 per share in dividends and has 100/002 shares cubstanding. The company has a net income of $m, its market price per shareis S100. Whakis its dividend payout ratio? Dividends = 4x 100,000 = $44@0,000 Yooe00 = 8°4 = HOT. Net Income = $ 1,000/000 1200,000 “ payeok rahi bo. = retention ratio a) 1s the amount of the dividend tobe paid the primary focus of the board of directors if- the board is guided by the residval dividend thedg ? explain The ameont of dividend bo be paid is not the primary focus of the board of diectors ie the boavd is guided by the residual theory of dividend because they main focus is investment Dividends ave paid after investment decision is vrdertaten. in the company 7 date of declaraton, when the @mpany has declared dividend te shareholders (Ded) Re x x GR) Dividend Payable x xx ~ dake of veword» he entries ave passed that day. anyone Who bas ashare on this geverill be gwen dividend _“* Ne Enbies” imgech (oP) Dividend Payable xxx RE ae asin ao Gash oa ~ date of geyment; Q2. After discussion with the BoDs of the compeny, Lionel Mandevik founded” and Dated: ~Thanman cf Mandeik incerporsted decided bvetain $&m_ fem its oct income ef $418, Calwlake the paysut vatic, and the vetenlen vaho @ Meio yilliomo — FGe+4000/00.0 jb =1000m ARK ADDR, BOO £00m 607/- retenbon mesuslicteeoe 400 m Yor. payout yoo = 0-4 = Go. 1000 Qs. The nekincome of Hawold Resovts was $50m tis pastyeay . The wmpany ~ decided have a 47. payeot vatin, How much was paid in dividends and how mech was added b vetsined eavnings 2 fagoorRahee Pigddenid ¢50mx 0-4 =) $20m_ dividend $50m - $20m = ¢30m__velsined eaming ® 8 84. Brown international maintoins a dividend policy with ai constant payout q vatic oF 30%. In the last 3 years, the a@mpany hed earnings: & Y1 =$30m Ys = $ 25m « Y2=$2om 4 Whats the fatal adaihien to vetained earnings over the last 3 years? a mae y2. 3 « 336m x 0-3= $4m $20inx0-3B= 46m gapme oGies7 bam 430m - 94m = 421m $20m ~sém= Flim) 425m-— d75m= aI75m : S2im+ SIM + $17-6m=° $525m (and. : iyE Use the some data in dividend delfay policy vatio toy each the above problem. Now if the ampany followed @ constant Ard psid stom each year, compule the dividend psy out | Year and the bhi addihon fh Yebined earings in the last vs ¥2 Ys $30rm- Flom = 320m _ $20m-s10m=5 10m $25m-giom = $ 15m v v RE Re Foyook Rahow « tiem _ 33:33/ $10m . 507. sim = Yor. gam 20m $25m total RE= $20m + glom + 315m = $45 Q5. Lisa, the CEO of EastWest communication, has identified $14m werth oF new capital projects which the company shoold jnavest next year. The ophmal capital structure For the companyis 47. debh and 60% equity. IF the expected earning fr the Year is Slom, what amount of dividend shevld she vecammend accoydig ty the. vesidval theory 2 $4om x 0-6 = $ 84m fiom - $b¥m= Flbm -> dividend= Convad Aiv Balance Sheet Dec al, 2012 Assets Liabilities & SHE Cash 120/000 Acc Payable. 70,000 Mavkelable Sec 35/000 ST Neks 55 1000 Ace Rec 451000 ate 175,000 Inventory 130/000 urp 2,700,000 Tea 330/000 ate 2, 825/00 Equip 2,970,000 Csbcle 500/000 Buildings 1,600,000 RE WSTS/000 FA 4,S70,000 SHE 2,075,000 TA 4,400,000 TL+ SHE 4 £400,200 2) Conrad paid ao dividends dsving the yeay and invesled the Funds in markelsble securities, b) the wmpany paid dwidenis telaliing $500,000 and wsed the balance eF NZ bs vetive LT debt ©) The company 4 Zs 4 506/000 ard invested the balance of NE a in buildings @ 3) The company paid cul aWoFits NI as dividends tp its SHs _» De company veported NI of és $1.365m foy the year ended Des SI, BD 3013. show how the company’s BS wovid change fem 2012 201s depending en how the company spent those eamings as described In the BD scenarios bbove. = a oe eeMevgers and Acquisitions Hilal hevizontal ili backward integration Ankegration Feetlib <- | sic | dated ee anresrar Filing one conpeley AAA an Retall outlets = tax implications > Present value loss Bi Ali Co. is consideying buying Tulip Company, Tulip has a tax jase of $700,000 . Co. expects before tax profit: $3001000 2, yeay for the next 3:gears. Tax valeis 467. and how the tax calculation will be worked uk + Yiand ¥2 0 fe tax income 300,000- less: adjusted (360/000 ) E Vosses 760,000 Taxable Income oO No fax 300,000 400,060 3 Pre tax income 300,000 y2 300,000 Less: adjuskd C100; 000) 100,000 Taxable jocome 206/000 Ys 1o0a00 Tax vale 467. ° Tax liability 92,000Dated. ose Sanyu company is_consideving purchasing Denso company For 4801000 in cash, Sanyws cost of capitals 127. on acguisihoo, The estimated <9sh inflows fiom Y1- 12 are_$10,000 per gear bv. Sree Tine) ging B00 cee 2. rooeox (PUG, 12s) 61,940 Nev (18,060) < negative NPV is negative hence we will nok acquire Qa. In 2001, Barton Covporation acquives Vice. Corporation which -bas.a tax less Carvied foward benefit $6680 $600,000. The arpavation (Burton) has earings $ 500000 in 2001 and $800,000 in 2002. Vax vateis 467, . Determine the tax bo be paid by Burlonin 200! and 2002. Tax toss eae ees) Income (2201) 500) 000 (100,000), mo bax in 2001. Income (2002) 800,000 "700,000 TR 467. 322000 _€ tax tobe paid jn 2002 ame after Fax 378,000 ‘The value of ao asset is the present value of its Fukore boo on eer erseiseieaance,cashFlow ated Mi consistent changing = B miss 1 corpaey is linkiog oP parcharing) XICIESTSOA (OUTS TSTaRIESE GREE acqeving for the next 6 years, What is the NOV of this investment? Lipa wants 451000 for the coke business, 45,000 allasets (30/000) Fime=0 192,000 + 901000 cash (3/000) 25,000 x (te 6%) 10%, 875 138/000 1 EQ Nev 6,375"pealrerpbreboaorsbraa _ »\a\o