# omplete the below 1-6 questions 1. A company D has a taxable income of \$216,000.

| November 9, 2018

complete the below 1-6 questions

1. A
company D has a taxable income of \$216,000. Using the U. S federal income tax
rates for corporations shown in table
16.1, what is Company D’s income tax liability? Note:
Table 16.1 is at the bottom of this document.

Questions 2 uses the following situation: A company that makes software-based embedded
process control systems is thinking about developing a new product. This
company’s effective tax rate is 44%, and they are profitable overall. The company
has established an after-tax MARR of 15%. The following table shows the
estimated before-tax cash-flow stream for the project.

End of Year Before-Tax
Cash-Flow Instance
0 –\$75,000
1 \$28,000
2 \$34,000
3 \$36,000
4 \$34,000
5 \$32,000
6 \$30,000

2. What is the after-tax cash-flow stream for the project assuming that
no depreciation and no loans are involved? What is the PW(i) of the after-tax
cash-flow stream? What’s the IRR of the after-tax cash-flow stream?

3. Blizzard Systems has an effective
income tax rate of 35.5%. They also have a loan with an interest rate of 6.75%.
What is the effective after-tax interest rate on their loan?

4.Mr. S has \$5000 to invest. He can buy a
5-year municipal bond at face value that has a 7.25% interest rate. He can also
buy a 5-year corporate bond with an interest rate of 9%. His effective income
tax rate is 18%. Which of these investments would be better from an after-tax
perspective?

Question 5a and 5b. relate to the following situation: XYZ Co. wants to get a special
instrument to control a critical step in their production line. The instrument
has an acquisition cost of \$25,000 and will lead to a savings of \$10,000 per
year for 5 years. They want to evaluate different methods of financing the
acquisition. Assume that if they buy it they will use MACRS depreciation for 3
years property. Their effective income tax rate is 44%, and their after-tax
MARR is 16%. The rest of the corporation is profitable.

5a.What’s the present worth of the
after-tax cash-flow stream if they buy it using a loan for the full amount at
8% interest (assume annual payment)

5b.What’s the present worth of the
after-tax cash-flow stream if they lease it for the 5 years with annual
payments of \$5000? The lease payments will be due at the beginning of the year.

Question 6 relates to the following situation:
A county government is considering three mutually exclusive software project
proposals and is not required to select any of them. Project A1 requires an
initial investment for \$115,000 with net savings estimated to be \$34,500 per
year. The initial investment for the
project A2 is \$182,900, and net savings have been estimated at \$56,000 per
year. The initial investment for mproject A3 is \$148,000, and net saving fors
have been estimated at \$41,000 per year. Each project has an estimated life of
5 years and no salvage value. The interest rate used by this county government
is 13%.

6.Use benefit-cost analysis for multiple
alternatives to demonstrate which of the proposals should be selected.

TABLE 16.1 U.S Federal Income Tax Rates for Corporations

Corporation’s
Taxable income Marginal
Tax Rate

\$0 to \$50,000 15%
\$50,001 to \$75,000 25%
\$75,001 to \$100,000 34%
\$100,001 to \$335,000 39%
\$335,001 to \$10,000,000 34%
\$10,000,001 to
\$15,000,000 35%
\$15,000,001 to
\$18,333,333 38%
Over
\$18,333,334 35%

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