Ask Question
4 December, 18:23

Haricot Corp. and Pinto Corp. both have operating profits of $150 million. Haricot is financed solely by equity, while Pinto has issued $200 million of 6% debt. If the corporate tax rate is 30%:

Required:

a. How much tax does each company pay?

b. What is the total payout to investors (debtholders plus shareholders) of each company?

+5
Answers (1)
  1. 4 December, 18:27
    0
    a. Haricot: 45 million

    Pinto: 41.4

    b. Haricot:

    debtholders: 0

    shareholders: 105 million

    Pinto:

    debtholders: 12 millipon

    shareholders: 96.6 million

    Step-by-step explanation:

    We have to:

    a.

    Tax on Haricot 150 * 30% = 45

    that is 45 million

    interest on debt of Pinto = 200 * 6% = 12

    that is to say 12 million

    Profit of Pinto 150 million less the interest that would be 12 million

    150 - 12 = 138

    we calculate the tax

    138 * 30% = 41.4 million

    Therefore Tax amount

    Haricot = 45 million

    Pinto = 41.4 million

    B.

    return to shareholders of Haricot = 150 - 45 = 105 million

    return to shareholders of Pinto = 150 - 12 - 41.4 = 96.6 million

    Also:

    return to debtholders of Haricot = 0

    return to debtholders of Pinto = 12 million
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Haricot Corp. and Pinto Corp. both have operating profits of $150 million. Haricot is financed solely by equity, while Pinto has issued ...” in 📗 Mathematics if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers