Statement of Retained Earnings
In its most recent financial statements, Newhouse Inc.
reported $50 million of net income and $810 million of retained earnings. The
previous retained earnings were $780 million. How much in dividends was paid to
shareholders during the year?
Intermediate Problems 7–11
(2-7)
Corporate Tax Liability
The Talley Corporation had a taxable income of $365,000 from
operations after all operating costs but before (1) interest charges of
$50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and
(4) income taxes. What are the firm’s income tax liability and its after-tax
income? What are the company’s marginal and average tax rates on taxable
income?
(2-9)
Corporate After-Tax Yield
The Shrieves Corporation has $10,000 that it plans to invest
in marketable securities. It is choosing among AT&T bonds, which yield
7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and
AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporate tax
rate is 35%, and 70% of the dividends received are tax exempt. Find the
after-tax rates of return on all three securities.
