- Question D Rc1 5 Marks Alexandria Company Has A Net Operating Profit Of 700000 Or 455000 After Corporate Taxes A 1 (49.63 KiB) Viewed 104 times
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Question D [RC1: 5 Marks] Alexandria Company, has a net operating profit of $700000, or $455000 after corporate taxes. Alexandria 's tax rate is 35 percent and the personal tax rates on interest and income from stock are 40 percent and 20 percent, respectively. Required: 1. If Alexandria Company paid the entire $455000 in after-tax income as a dividend what is the after-tax cash flow to the shareholders? (1 mark) 2. If operations were financed entirely with debt (so that all of the net operating income escaped corporate taxes), how much cash flow would bondholders receive after paying the required personal tax? (1mark) 3. Considering only taxation issues, should the firm finance its operations mostly through debt or mostly through equity given the information above? (1 mark) 4. Suppose that in part 1 above the $455000 in after corporate tax income was retained by the firm. How would that affect your answer to part 3? (1 mark) 5. Justify and explain your answer in details (1 mark) Answer: