An investor recently purchased a corporate bond that yields 9%. The investor is in the
36% combined federal and state tax bracket. What is the bond’s after-tax yield?
(2-2) Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of
equal risk currently yield 6%. At what tax rate would an investor be indifferent between
these two bonds?
(2-3) ...view middle of the document...
What was its interest expense? ( Hint: Write out the headings for
an income statement, and then fill in the known values. Then divide $6 million net
income by 1 − T = 0.6 to find the pre-tax income. The difference between EBIT and
taxable income must be the interest expense. Use this procedure to work some of the
(2-4) Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4
million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What
was its charge for depreciation and amortization?
(2-5) Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of
$500,000. What was its net cash flow? Assume it had no amortization expense.
(2-6) In its most recent financial statements, Del-Castillo Inc. reported $70 million of net
income and $900 million of retained earnings. The previous retained earnings were $855
million. How much in dividends did the firm pay to shareholders during the year?