Tax-Less Software Corporation is considering an investment of $400,000 in equipment for producing a new tax preparation software package. The equipment has an expected life of 4 years. Sales are expected to be 60,000 units per year at a price of $20 per unit. Fixed costs excluding depreciation of the equipment are $200,000 per year, and variable costs are $12 per unit. The equipment will be depreciated over 4 years using the straight line method with a zero salvage value. Working capital requirements are assumed to be 1/12 of annual sales. The market capitalization rate for the project is 15% per year, and the corporation pays income tax at the rate of 34%. What is the project’s NPV? What is the breakeven volume?
A、$181,845 & 37,500
B、$191,845 & 38,500
C、$191,845 & 40,500
D、$181,845 & 39,500
第1题
The annual after-tax cash flows for each process are as follows:
Tisa Co has 10 million 50c shares trading at 180c each. Its loans have a current value of $3·6 million and an average after-tax cost of debt of 4·50%. Tisa Co’s capital structure is unlikely to change significantly following the investment in either process.
Elfu Co manufactures electronic parts for cars including the production of a component similar to the one being considered by Tisa Co. Elfu Co’s equity beta is 1·40, and it is estimated that the equivalent equity beta for its other activities, excluding the component production, is 1·25. Elfu Co has 400 million 25c shares in issue trading at 120c each. Its debt finance consists of variable rate loans redeemable in seven years. The loans paying interest at base rate plus 120 basis points have a current value of $96 million. It can be assumed that 80% of Elfu Co’s debt finance and 75% of Elfu Co’s equity finance can be attributed to other activities excluding the component production.
Both companies pay annual corporation tax at a rate of 25%. The current base rate is 3·5% and the market risk premium is estimated at 5·8%.
Required:
(a) Provide a reasoned estimate of the cost of capital that Tisa Co should use to calculate the net present value of the two processes. Include all relevant calculations. (8 marks)
(b) Calculate the internal rate of return (IRR) and the modified internal rate of return (MIRR) for Process Omega. Given that the IRR and MIRR of Process Zeta are 26·6% and 23·3% respectively, recommend which process, if any, Tisa Co should proceed with and explain your recommendation. (8 marks)
(c) Elfu Co has estimated an annual standard deviation of $800,000 on one of its other projects, based on a normal distribution of returns. The average annual return on this project is $2,200,000.
Required:
Estimate the project’s Value at Risk (VAR) at a 99% confidence level for one year and over the project’s life of five years. Explain what is meant by the answers obtained. (4 marks)
第2题
Suppose that Rose Industries is considering the acquisition of another firm in its industry for $100 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 3% every year there after. Rose currently maintains a debt to equity ratio of 1, its marginal tax rate is 40%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. Rose's unlevered cost of capital is closest to:
A、8.0%
B、7.5%
C、7.0%
D、9.0%
第3题
Option A: Joining Delta Ltd as a manager with a monthly salary of RMB40,000 and an annual bonus of RMB100,000 payable in December each year.
Option B: Providing services to Delta Ltd as a consultant for a consultancy fee of RMB50,000 per month.
Option C: Setting up his own sole proprietorship. He will pay himself a monthly salary of RMB20,000 from this sole proprietorship. For 2014 the net profit of the sole proprietorship after charging Mr Xu’s salary is expected to be RMB420,000.
Option D: Setting up a limited company, Xupa Ltd. He will pay himself a monthly salary of RMB20,000 from Xupa Ltd. For 2014 the net profit of the company after charging Mr Xu’s salary is expected to be RMB420,000. Xupa Ltd will pay enterprise income tax at the rate of 25% and distribute all of its profit after tax to its shareholder, Mr Xu, as a dividend.
Required:
Calculate the individual income tax (IIT) payable by Mr Xu for 2014 under each of the four options.
Note: Ignore value added tax and business tax. (10 marks)
(b) State, giving reasons, whether the following persons will be subject to individual income tax in China on their worldwide income in 2014:
(1) Ms Wang has her household in Xiamen and holds a China identity card. She has been studying in Australia since 2010 and has not returned to China for the last six years, including in 2014.
(2) Mr Beth is a US citizen, who has lived in China working for a non-government organisation since 2010. He has not travelled outside China for the last six years, including in 2014.
(3) Ms Ruth is an Australian citizen. She travelled to China and stayed in China for a total of 250 days in 2014. (5 marks)
第4题
第5题
As thoroughly awful as everyone knows cigarettes to be – still the No. 1 cause of premature death in this country – public officials become unclear when they try to reduce smoking’s terrible toll. As long as they lack the will to ban tobacco altogether, they face all sorts of ethical, legal and political problems in regulating a product that is, after all, perfectly legal. High tobacco taxes, critics say, unfairly punish smokers, who are disproportionately low income. Banning advertising of a legal product raises free-speech issues. Now, the New York City Council, is considering another strategy: making it illegal for anyone younger than 21 to buy cigarettes. Currently, anyone 18 or over can buy a pack. The new proposal would, at least theoretically, make cigarettes difficult to obtain by those who are most vulnerable to peer pressure and tobacco marketing. Yet the good intentions are outweighed by the proposal’s problems. For one thing, it’s practically doomed to have minimal effect. A 20-minute bus ride will transport any Bronx (布朗克斯,纽约市最北端的一区) resident to neighboring Yonkers (扬克斯,纽约市的郊区), where 18-year-olds would still be allowed to buy as many packages as they want. According to experts, nearly 90 percent of smokers take up the habit before the age of 18 – apparently unaffected by the existing rules forbidding stores from selling to them. More than 1,200 people die of smoking-related disease each day in this country. By all means, there should be more education about the dangers of smoking, more bans on where people may smoke, more advertising to counter the tobacco industry’s marketing. But adults should retain the right to make most decisions that affect only themselves, even very bad decisions. Beyond the practical considerations, government leaders should think twice about taking away the right of adults to buy a legal, if dangerous, product like cigarettes. True, the legal drinking age is 21 in every state. But that is justified by the fact that an 18-year-old’s dumb decision to drink may harm others. A decision to smoke harms only the smoker.
1)What can we learn from the first paragraph?
A.Public officials intend to forbid tobacco completely.
B.Public officials have to face various problems in handling smoking.
C.Public officials are pressurized to reduce the number of smokers.
D.Public officials still hesitate as to whether to ban tobacco or not.
2)Why does the New York City Council raise the cigarette-buying age to 21?
A.To reduce the influence of tobacco marketing on people.
B.To direct tobacco marketing to develop in a healthy way.
C.To reduce the number of cigarette-related diseases and deaths.
D.To prevent young people from buying cigarettes upon temptation.
3)Why does the author say that the new proposal will have the least effect?
A.Because young people can manage to get cigarettes elsewhere.
B.Because the government will not approve such a proposal.
C.Because tobacco companies will try all means to resist the proposal.
D.Because most people will dismiss the proposal as ignoring human right.
4)According to the passage, which is the best way to reduce smoking-related death?
A.People shouldn’t be allowed to smoke in public places.
B.Tobacco industry should be forbidden to advertise their products.
C.People should be educated to raise their awareness of the harm of smoking.
D.Government should announce the number of smoking-related deaths each year.
5)What does the author imply by comparing the smoking age and the drinking age?
A.Smoking and drinking are the rights that adults possess.
B.Smoking and drinking are both harmful to people’s health.
C.Smoking should not be treated in the same way as drinking.
D.The legal smoking age should be the same as that of the drinking.
第6题
As the cigarette industry draws increasing tire, teen smokers like Dimpy are becoming the focus of concerned policy makers around the country. Sported by a University of Michigan study showing a dramatic rise in adolescent tobacco use, the White House is considering ways to curb the surge. Among the options: eliminating cigarette vending machines, restricting tobacco advertising, increasing the federal excise tax on cigarettes and launching a national media campaign directed at adolescents. A grand jury in New York has begun an investigation to determine whether Philip Moms Cos. concealed information linking nicotine levels and addictiveness. And the Justice Department is looking into whether tobacco company executives committed perjury in their April 1994 congressional testimony on how smoking affects health.
Lack of credibility. But it's tough to get an antismoking message through to teens. The California Department of Health Services spends $12 million a year placing antismoking commercials on television, including popular MTV programs, but many teenagers aren't buying the message. Says Erica Leona, who will enter eighth grade in the fall, "I don't think those ads work, became it's like a cartoon. It's too exaggerated."
In fact, teens seem skeptical about the potential effectiveness of any organized efforts to reduce smoking, like increasing taxes. While research shows that every time rexes go up, sales go down, including among teens, young people say the cost is relatively low in comparison with other vices. "You want weed, it'll cost you," says Robert Caldwell, 14. "For cigarettes, you just go anywhere, put 12 quarters into one of those machines, take it and go." Other teens maintain that eliminating vending machines won't make cigarettes any harder to buy. "You give a guy enough to buy you a pack and a beer, and he'll buy the pack," says Cameron Davis, 13. And advertising isn't really what entices adolescents to smoke. For the most part, they say, teens smoke because of peer pressure. "It's like sex." says 13year-old Frances, who started smoking at age 9. "You feel like, if you don't do it with your boyfriend, he won't like you."
In addition, messages that relate to health don't compute with adolescents, who often feel invincible. It doesn't help, says Roxanne Cannon, editorial director of Teen and Sassy magazines, that so many teen idols such as Ethan Hawke, Jason Priestley and Luke Perry are seen smoking.
Teens say any message is more effective if it's communicated by other kids. But even a White House appeal made by Chelsea Clinton might not get through to adolescents eager to smoke. "I don't listen to my mom when she tells me to stop," says Dimpy. "Why would I listen to anyone else".
Dimpy, the girl named in this passage ______.
A.began to smoke when she was eleven
B.became the focus of concerned policymakers because she has been smoking for quite a few years
C.showed pictures of gross lungs of smokers to her fellow pupils
D.forgot the shops where she usually obtained her cigarettes
第7题
As the cigarette industry draws increasing fire, teen smokers like Dimpy are becoming the focus of concerned policy makers around the country. Supported by a University of Michigan study showing a dramatic rise in adolescent tobacco use, the White House is considering ways to curb the surge. Among the options: eliminating cigarette vending machines, restricting tobacco advertising, increasing the federal excise tax on cigarettes and launching a national media campaign directed at adolescents. A grand jury in New York has begun an investigation to determine whether Philip Moms Cos. concealed information linking nicotine levels and addictiveness. And the Justice Department is looking into whether tobacco company executives committed perjury in their April 1994 congressional testimony on how smoking affects health.
Lack of credibility. But it's tough to get an antismoking message through to teens. The California Department of Health Service spends $12 million a year placing antismoking commercials on television, including popular MTV programs, but many teenagers aren't buying the message. Says Erica leona, who will enter eighth grade in the fail, "I don't think those ads work, because It's like a cartoon, it's too exaggerated. "
In fact, teens seem skeptical about the potential effectiveness of any organized efforts to reduce smoking, like increasing taxes. While research shows that every time taxes go up, sales go down, including among teens, young people say the cost is relatively low in comparison with.other vices. "You want weed, it'll cost you," says Robert Caldwell, 14. "For cigarettes, you just go anywhere, put 12 quarters into one of those machines, take it and go. " Other teens maintain that eliminating vending machines won't make cigarettes any harder to buy. "You give a guy enough to buy you a pack and a beer, and he'll buy the pack," says Cameron Davis, 13. And advertising isn't really what entices adolescents to smoke. For the most part, they say, teens smoke because of peer pressure. "It's like sex. " says 13-year-old Frances, who started smoking at age 9. "You feel like, if you don't do it with your boyfriend, he won't like you. "
In addition, messages that relate to health don't compute with adolescents, who often feel invincible. It doesn't help, says Roxanne Cannon, editorial director of Teen and Sassy magazines, that so many teen idols such as Ethan Hawke, Jason Priestley and Luke Perry are seen smoking.
Teens say any message is more effective if it's communicated by Other kids. But eyen a White House appeal made by Chelsea Clinton might not get through to adolescents eager to smoke. "I don't listen to my morn when she tells me to stop," says Dimpy. "Why would I listen to anyone else."
Dimpy, the girl named in this passage ______ .
A.began to smoke when she was eleven
B.became the focus of concerned policymakers because she has been smoking for quite a few years
C.showed pictures of gross lungs of smokers to her fellow pupils
D.forgot the shops where she usually obtained her cigarettes
第8题
(b) Explain the corporation tax (CT) and value added tax (VAT) issues that Irroy should be aware of, if she
proceeds with her proposal for the Irish subsidiary, Green Limited. Your answer should clearly identify those
factors which will determine whether or not Green Limited is considered UK resident or Irish resident and
the tax implications of each alternative situation.
You need not repeat points that are common to each situation. (16 marks)
第9题
All five projects have a project life of four years. Projects A, B, C and D are divisible, and Projects B and D are mutually exclusive. All net present values are in nominal, after-tax terms.
Project E
This is a strategically important project which the Board of OAP Co have decided must be undertaken in order for the company to remain competitive, regardless of its financial acceptability. Information relating to the future cash flows of this project is as follows:
These forecasts are before taking account of selling price inflation of 5·0% per year, variable cost inflation of 6·0% per year and fixed cost inflation of 3·5% per year. The fixed costs are incremental fixed costs which are associated with Project E. At the end of four years, machinery from the project will be sold for scrap with a value of $400,000. Tax allowable depreciation on the initial investment cost of Project E is available on a 25% reducing balance basis and OAP Co pays corporation tax of 28% per year, one year in arrears. A balancing charge or allowance is available at the end of the fourth year of operation.
OAP Co has a nominal after-tax cost of capital of 13% per year.
Required:
(a) Calculate the nominal after-tax net present value of Project E and comment on the financial acceptability of this project. (14 marks)
(b) Calculate the maximum net present value which can be obtained from investing the fund of $10 million, assuming here that the nominal after-tax NPV of Project E is zero. (5 marks)
(c) Discuss the reasons why the Board of OAP Co may have decided to limit investment funds for the next year. (6 marks)
第10题
I.Federal taxes withheld from employees.
II.Sill Engineering's share of employee's Social Security taxes.()
A、Only statement I is correct
B、Only statement II is correct
C、Both statements are correct
D、Neither statement is correct
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