• Problem 1. Below are three line items from a corporation's Income Statement. Select the correct line to use and compute the federal tax.

  Sales: $435,000

  Cost of Goods Sold: $325,000

  Net Profit Before Tax: $ 72,000

  Selected Answer:	[None Given]
  Correct Answer:	[None]
  Response Feedback:	[None Given]

• Question 220 out of 8 points

  Problem 2-2. A corporation with sales of $250,000 (OK it's a small corporation!) paid $17,150 federal tax on taxable income of $95,000. They also had an end-of-year party where they ordered 50 Big Macs at $2.79 each. Given the above what was their:

  a. Average tax rate (4 points)

  b. Marginal tax rate (4 points)

  and if you try to do anything with the Big Macs to solve this problem - you deserve to get it wrong. I do want to remind you that this is not a continuation of the first problem and to please read what the problem says.

  Selected Answer:	[None Given]
  Correct Answer:	[None]
  Response Feedback:	[None Given]

• Question 230 out of 20 points

  Problem 2-3. OK here comes the big word problem!

  IMTU Corporation (it stand for " Made This Up") had sales last year of $1,000,000. They sell heat shields to place on your lap for stupid McD's customers who insist on placing a cup of hot coffee between their legs. The materials cost $100,000 (that's good) but the labor to put them together costs $700,000 (yes they are union). Advertising was just $50,000, as they mostly use word-of-mouth. They did need to raise some money this year. The bank loaned them $150,000 at 8% (that interest is due this year). The interest didn't worry them too much as it was partly off-set by the dividend check theyreceivedfrom McDonalds for $8,000 (hmmmmm - I wonder if there is a conflict of interest here?) Anyway, all things considered, "it was a very good year" (and they are not even 17 - there's a joke or trivia item imbedded here - one bonus point if you can explain what it is), so much so they paid their loyal shareholders $50,000 in common stock dividends. OK, given all that, what was their Federal tax bill?NOTE: you MUST show (type in) all work. Label each line item in the calculation to taxable income and indicate clearly what your final answer is. VERY FEW points if all you show me is just your final answer.

  Selected Answer:	[None Given]
  Correct Answer:	[None]
  Response Feedback:	[None Given]

• Question 240 out of 10 points

  Problem 2.4. According to the May 19th edition of the WSJ, 6 month CDs were yielding 2.75% (nominal rate of interest). If risk were considered to be 0 (zero) and inflation was expected to average 2% for the next two years, whatshould one conclude the real rate of interest to be?

  Selected Answer:	[None Given]
  Correct Answer:	[None]
  Response Feedback:	[None Given]

• Question 250 out of 10 points

  Problem 2.5. The Acme Bank and Storm Dood Company (good old "AB&SDC") is trying to determine what rate of interest they should pay on the new 6 month CDs they are trying to get customers to buy. Looking at the WSJ here's some interest rates they found:

  Prime: 6%; LIBOR: 3.25%; Fed Funds: 2%; 10 Month T-Note: 5%; 3 Month T-Bill 3.6%.

  Believe it or not, AB&SDC has a rather shaky reputation - so much so knowledgeable investors would require an additional 6% to buy Acme's CDs to make up for their high risk of defalut (ignor maturity and liquidity issues).

  Given the above, what nominal rate of interest must Acme's CDs hav to pay?

  Selected Answer:	[None Given]
  Correct Answer:	[None]
  Response Feedback:	[None Given]