Instructions: Provide the data as required in each item. Show solutions, if necessary, in good form.

1.A Sun & Sand Co. taxable income of $330000.

Taxable Income Tax Rate

$ 0 - 75000 15%

75001 100000 25%

100001 - 200000 29%

200001 - 250000 38%

250001 - 400000 35%

a. What is the tax amount of Sun & Sand Co.? (6 marks)

b. Calculate the average tax rate. (2 marks)

c. What is its marginal tax rate? (2 marks)

1.B The Income Statement of Gucchi shows that its net income is $ 750,000. The amount of dividend paid is $234,000 and 250,000 shares are outstanding.

Calculate: a. Earnings per share (2.5 marks)

b. Dividend per share. (2.5 marks)

2. Describe the nature of the principle- agent relationship between the owner and managers of a corporation. Why does principle-agent relationship exist within a corporation? (16 marks)

3. The Omega Company Ltd. is considering the purchase of a new machine. Two alternative machines X and Y have been suggested, each costing $40000. Companys cost of capital is 10%.

Earnings after taxation expected to be as follows:

Year Cash flows $

Machine A Machine B

1 $ 4000 $ 12000

2 12000 16000

3 16000 20000

4 24000 12000

5 16000 8000

Suggest which machine should be preferred based on NPV method. (9 marks)

4. Marcs Inc. presented the following financial statements for the year ending 31st December 2019 and 2020.

Balance Sheet

As on 31st December 2019 and 2020

Assets $ $ Liabilities and Owners equity $ $

2019 2020 2019 2020

Current Assets Current Liabilities

Cash 250 285 Account Payable 314 325

Account Receivable 349 512 Notes Payable 209 185

Inventory 632 648

_______ _______ ________ ________

1231 1445 523 510

_______ ________ ________ ________

Fixed Assets Long term Liability 635 676

Net plant and 1712 1864 Owners Equity

Equipment Common Stock 700 750

Retained earnings 1085 1373

________ ________ _________ ________

2943 3309 2943 3309

_________ _________ _________ ________

Income Statement

For the Year Ended 31st December 2020

2020 $

Net Sales 1721

Cost of Goods sold 812

Depreciation 84

Earnings before interest and taxes 825

Interest Paid 75

Taxable Income 750

Taxes (40%) 300

Net Income 450

4.A 1. If the amount of dividend paid by Marcs Inc. in the year 2020 is $162, What is the addition to retained earnings? (2.5 marks)

2. Calculate the amount of operating cash flows for 2020. (2.5 marks)

4.B. 1. Calculate net capital spending for 2020. (2.5 marks)