1-What are the components of the Tax Formula?

2-Rita, age 45, earned a salary of $85,000 in the current year. She contributed $4,000 to her traditional Individual Retirement Account (IRA), sold stock held as an investment for a short-term capital loss of $3,000, and paid $5,400 in alimony to her ex-husband (divorce finalized 2018). Determine her Adjusted Gross Income (AGI).?

3. What IRS Form do you file with the Tax Formula?

4. What is Gross Income?

5. What is accrual method of accounting?

6. What is cash receipts method of accounting?

7. What is hybrid method of accounting?

8. Name five income sources.

9. Name seven items specifically included in Gross Income.

Suzzie is a 40-year-old black lawyer. She leads an active life and uses oral contraceptives. She works out regularly and eats a very low-fat diet to manage her weight. She and her husband want to start a family. Her blood tests indicate that she has a low folate level. She has a light breakfast of fruit, a lunch of a sandwich and coffee, and a dinner of a green salad, pasta, fruit, and milk. She comes into your office for advice on how to improve her diet. What recommendations do you have for her as her nutritional counselor? • What are your concerns about her diet • What additional information do you need? • In what way could she improve her vitamin intake? • Would a supplement be useful?

Consider a perfectly competitive economy with 200 individuals. Every individual is both a producer and a consumer. Each person has a production function as Y_i = 100 – X_i². There are 100 type-A individuals, whose preference is given by U_A= 5y_A (every person) and the 100 type-B individuals with U_B = 18lnx_B + 2y_B. Follow the steps below to check if p_x/p_y = 4 is an equilibrium price.

1. When p_x/p_y = 4, each producer produces __ units of good X and ___ units of good Y

2. When p_x/p_y = 4, the total (gross) quantity supplied of good X is __ units and that of good Y is __ units.

3. When p_x/p_y = 4, a type-A individual consumes __ units of good X and __ units of good Y

4. When p_x/p_y = 4, a type-B individual consumes __ units of good X  and __ units of good Y.

5. When p_x/p_y = 4, the total (gross) quantity demanded of good X is __ units and that of good Y is __ units.

Test company is debating whether or not to convert its all-equity capital structure to one that is 35 percent debt. Currently there are 5,000 shares outstanding and the price per share is $49. EBIT is expected to remain at $43,600 per year forever. The interest rate on new debt is 7 percent and there are no taxes. a. Mr, Ram , a shareholder of the firm, owns 100 shares of stock. What is his cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? b. What will Mr. Ram's cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares. c. Suppose the company does convert, but Mr. Ram prefers the current all-equity capital structure. Show how he could unlever his shares of stock to recreate the original capital structure. d. Using your answer to part (c), explain why the company's choice of capital structure is irrelevant

PG&C, Inc. a consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40 percent debt. Currently, there are 500 shares outstanding and the price per share is $65. EBIT is expected to remain at $3000 per year forever. The interest rate on new debt is 7 percent, and there are no taxes.

a. Ms. Johnson, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?

b. What will Ms. Johnson' cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.

c. [Extra 10% Credit Question] Suppose PG&C does convert, but Ms. Johnson prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital structure.

Glucose Scan Incorporated (GSI) currently sells its latest glucose monitor, the Glucoscan 3000, to diabetic patients for $129. GSI plans on lowering their price next year to $99 per unit. The cost of goods sold for each Glucoscan unit is $50, and GSI expects to sell 100,000 units over the next year.

(1) Suppose that if GSI drops the price on the Glucoscan 3000 immediately, it can increase sales over the next year by 35% to 135,000 units. What is the incremental impact of this price drop on the firms EBIT? (Hint: EBIT=Sales-COGS)

(2) Suppose that if GSI drops the price on the Glucoscan 3000 immediately, it can increase sales over the next year by 35% to 135,000 units. Also suppose that for each Glucoscan monitor sold, GSI expects additional sales of $100 per year on glucose testing strips and these strips have a gross profit margin of 70%. Considering the increase in the sale of testing strips, what is the incremental impact of this price drop on the firms EBIT? (Hint: EBIT=Sales-COGS)   

Part 1:

On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $29.00 per share. On March 1, a dividend of $2.10 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $24.50 per share. You paid 50 cents per share in commissions for each transaction.

a. What is the proceeds from the short sale (net of commission)?

b. What is the dividend payment?

c. What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $24.50 per share?

d. What is the net gain from your transaction?

Part 2:

The Arizona Stock Exchange lists a bid price of 1.24 and an ask price of 1.45 for Kicking Bird Energy Corporation.

a. At what price can you buy the stock? (Round your answer to 2 decimal places.)

b. What is the dealer’s bid-ask spread? (Round your answer to 2 decimal places.)