1)Please indicate true or false for each subpart a) A company is analyzing a pot
ID: 2737644 • Letter: 1
Question
1)Please indicate true or false for each subpart
a) A company is analyzing a potential additional project that would result in $1,000,000 additional net income. If an additional $1,000,000 in income is earned,the average tax rate is 30% and the marginal tax rate is 34% an additional $300,000 in taxes will be paid.
b)The present value of $50,000 to be received 10 years from now at 8% interest is about $23,160.
c) Gross profit will help to determine how effective a company has been with their operating expenses.
d)Yield to maturity is the return of a bond investment if held to maturity
e) Net profit margin is calculated by taking net profit divided by operating profit.
Explanation / Answer
a.
False, the additional income is $1,000,000 and thus the taxes are $1000,000*0.34 = $340,000.
Marginal tax rate is paid for every additional income earned by the company and not the average tax rate.
therefore, marginal tax rate will be considered that is 34%.
b.
Future Value = $50000
Nper = 10 years
rate = 8%
Compute the present value of the amount using excel function.
PV = PV(Rate,Nper,Pmt,FV) = PV(8%,10,0,-50000) = $23,159.67.
Therefore, the statement is true.
c.False
Gross profit will help to determine how effective the company has been with the trading (manufacturing )expenses.
d.
True.
YTM is the return of a bond investment if held to maturity.
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