Check Figures - Chapter 1 HW

NOTE:  you must show work on each calculation  - do not merely copy this and turn it in as your homework. 
Also, Appendix C at the back of our textbook (starts on Page C-1) has additional check figures. One more note: all the Self-Test problems at
the end of the chapters have worked-out solutions shown starting on Page B-1 at the end of the textbook.

P1-5 (a) $19,700 (b) $72,800 (c) 0.213 ==> 21.3% (d) 34%

P1-6 (a) EBT of $10,000 has tax of $1,500 and EAT of $8,500; ATR = $1,500/$10,000 = .15 ==>15% average tax rate.  Notice that average tax rate = marginal tax rate here since only one bracket involved.

EBT of $500,000 has tax of $113,900 + 0.34(500,000-$335,000) = $170,000, leaving EAT of $500,000-$170,000 = $330,000. 
ATR = $170,000/$500,000 = 34%.

EBT of $1,500,000 has tax of $113,900 + 0.34(1,500,000-335,000) = $510,000, leaving EAT of $1,500,000 - $510,000 = $990,000.
ATR = $510,000/$1,500,000 = 34%.

(b) Put EBT on horizontal axis and % ATR (average tax rate) on the vertical axis.

P1-7 (a) by visual inspection (just looking at the 2nd column from the right in Figure 1.4), the marginal tax rates--or tax rate applied to the next dollar of income--are as follows:
Taxable Income    Marginal Tax Rate
$15,000                15%
$60,000                25%
$90,000                34%
$200,000              39%
$400,000              34%
$1,000,000           34%
$20,000,000         35%

(b) graph the numbers above, putting marginal tax rate on the horizontal axis, and taxable income on the vertical axis.

P1-9  Comparing the Earnings After Tax (EAT) and Earnings Available to the Common Stockholder (EACS) for company using either debt financing (meaning they have to pay interest of $10,000 and no preferred stock dividends) or preferred stock financing (which means they pay no interest but $10,000 in preferred stock dividends). 
Interest case: EACS = $18,000;  Pref. Stock Divs. case: EACS = $14,000
  (NOTE: EACS is EAT - Pref. Stock Divs.)
 Your answer should show EBIT - Interest Expense = EBT, then show Tax Owed, then EAT, then P.S. Divs. if any, then EACS.

Complete solutions to the homework will be available on the faculty-student shared drive (R) two days after the due date.  The deadline for all late homework is two business days after the original due date, at the time of class (so, for 12:00 class, the last time at which you could turn in the homework for partial credit is 12:00 on Fri. if it was due on Wed.).