Calculation of Capital Budgeting.
A company has the following income statement. What is its net operating profit after taxes (NOPAT)?
|
Sales
|
$1,000
|
|
Costs
|
600
|
|
Depreciation
|
250
|
|
BIT
|
$150
|
|
Interest expense
|
50
|
|
EBT
|
$100
|
|
Taxes (40%)
|
40
|
|
Net income
|
$60
|
a. $ 60
b. $ 80
c. $ 90
d. $100
e. $120
Mantle Corporation is considering two equally risky investments:
1) A $5,000 investment in preferred stock which yields 7 percent.
2) A$5,000 investment in a corporate bond which yields 10 percent.
What is the break-even corporate tax rate which makes the company indifferent between the two investments?
a. 33.17%
b. 34.00%
c. 37.97%
d. 42.15%
e. 42.86%