Question

Wingo Inc, which has a 34 percent income tax rate, is considering making a substantial investment in marketable securities that should generate $400,000 income/cash flow this year. Compute Wingo’s after-tax cash flow under each of the following assumptions:
a. The investment is in tax-exempt bonds, and Wingo is not in an AMT position (Wingo will pay regular income tax but no AMT this year).
b. The investment is in publicly traded stock, the $400,000 cash dividend is eligible for a 70 percent dividends-received deduction, and Wingo is not in an AMT position.
c. The investment is in tax-exempt bonds. Wingo is in an AMT position and has a positive ACE adjustment before consideration of the interest income.
d. The investment is in publicly traded stock, and the $400,000 cash dividend is eligible for a 70 percent dividends-received deduction. Wingo is in an AMT position and has a positive ACE adjustment before consideration of the dividend income.


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  • CreatedNovember 03, 2015
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