FI 360 Financial Management Case Study

1980 Words 8 Pages
Register to read the introduction… If under these conditions as a partnership, operating income will be taxed only once, so investors will receive $500,000 x (1-0.35) = $325,000. But as a corporation, operating income will be taxed once at the corporate level and again at the personal level at the capital gains tax rate of 15% percent, so investors will receive only $500,000 x (1-0.35)(1-0.15) = $276,250. The “corporate tax wedge” will be $48,750, or 9.75 percentage points.

b. Now recalculate the tax disadvantage using the same income but with the maximum tax rates that existed before 2003. (These rates were 35 percent (Tc = 0.35) on corporate profits and 38.6 percent (Tp = 0.386) on personal investment income). ANSWER P1-1. b. With the pre-2003 tax rates, partnership investors would receive $500,000 x (1-0.386) = $307,000. If the firm was organized as a corporation, operating income would be taxed once at the corporate level (at 35 percent) and again at the investor personal level at the personal income tax rate of 38.6 percent, so investors received only $500,000 x (1-0.35)(1-0.386) = $199,550. The “corporate tax wedge” was thus $107,450, or 21.49 percentage
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Access Corporation
Balance Sheet
As of December 31, 2012 Assets | Liabilities and Stockholders’ Equity | Cash | $ 500 | Accounts payable | $ 22,000 | Marketable securities | 1,000 | Notes payable | 47,000 | Accounts receivable | 25,000 | Total current liabilities | $ 69,000 | Inventories | 45,500 | Long-term debt | 22,950 | Total current assets | $ 72,000 | Total liabilities | $ 91,950 | Land | $ 26,000 | Common stock a | 31,500 | Buildings and equipment | $ 90,000 | Retained earnings | 26,550 | Less: Accumulated depreciation | 38,000 | Total liabilities and stockholders’ |
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a. Use the preceding financial statements to complete the following table. Assume that the industry averages given in the table are applicable for both 2011 and 2012.
b. Analyze Access Corporation’s financial condition as it relates to (1) liquidity, (2) activity, (3) debt, (4) profitability, and (5) market value. Summarize the company’s overall financial condition.
Access Corporation’s Financial Ratios | Industry Average | Actual
Ratio 2011 | Actual
Ratio 2012

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