Explain how countries like Greece have largely misused the Keynesian model to “buy” votes and how this has created “sovereign debt” problems. In this regard, why can countries like Greece, or US states like California and cities like Detroit, become bankrupt, but countries like the US and Canada can never be bankrupt from too much debt?

In 2018, Carson is claimed as a dependent on his parent's tax return. Carson's parents provided most of his support.

What is Carson's tax liability for the year in each of the following alternative circumstances? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and Trusts for reference. for reference.

a. Carson is 17 years old at year-end and earned $14,000 from his summer job and part-time job after school. This was his only source of income.

Tax Liability?

b. Carson is 23 years old at year-end. He is a full-time student and earned $14,000 from his summer internship and part-time job. He also received $5,000 of qualified dividend income.

Tax Liability?

Tax Planning Strategies-Income Splitting

Splitting of income for tax planning purposes is permitted in certain circumstances.

REQUIRED:

1. Explain why income splitting results in an overall decrease in taxes payable for the family when one spouse makes significantly more income than the other.
2. Lisa is a single parent with one child over the age of 18 and two children under 10 years old. List and describe two (2) income splitting strategies that would be permitted for Lisa to use for tax purposes.
3. From a tax perspective, explain the difference between income earned from the sale of your shares and business income?
4. List and describe three (3) factors used by CRA to determine if income earned by the investor is considered capital gains or business income.

You are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay the dividend. To help allay that fear, you compute the times-preferred-dividend-earned ratio for the past three years from the following data taken from the firm’s financial statements:

Year -----------------------------------------20X1-------------------------- 20X2------------------- 20X3

Operating income -----------------------$16,000,000 ----------------$13,000,000 ----------$14,000,000

Interest ------------------------------------6,700,000 --------------------3,700,000 --------------5,900,000

Taxes --------------------------------------4,600,000 ---------------------5,100,000 -------------5,100,000

Preferred dividends --------------------600,000 -----------------------800,000 -----------------1,200,000

Common dividends --------------------3,000,000 ----------------------3,300,000 --------------______

Round your answers to two decimal places.

20X1:_______

20X2:_______

20X3:_______

What does your analysis indicate about the firm’s capacity to pay preferred stock dividends?

Times preferred dividend earned has ________ each year, which indicates the firm's capacity to pay the dividend has _______ .

Rierson owns a garment factory in Spain and sells designer clothes to US and other European countries. He is trying attract some investments from US that he can use to expand further into the US market. US investors are looking for stable cash flow, which is going to be a challenge given that the fashion industry is changing constantly and he can get stuck with unsold inventory. To allay their fears, Rierson decides to investment some of the capital raised into Italian 10 year Government Bonds. He explains that the return from these bonds will be used to improve his operations. Ignoring currency exposure, consider the following: (15 PTS)

a.    He decides to invest into ten year 1,000 EURO Government bond with 8% coupon rate and semi-annual coupons. If the bond is currently trading for a price of 957.35 Euros, what is the bond's yield to maturity? Assume is buys 10,000 of these bonds. (10 PTS)

b.    Suppose he is told that the yield to maturity has increased to 15% (expressed as an APR with semiannual compounding). What price is the bond trading for now? (5 PTS)

New Tech Corporation is based in Warwick, U.K. The Corporation will sell a network monitoring system to Open Telecom Group. The system costs US$50,000,000 and will be paid by Open Telecom Group in six-months. New Tech Corporation plans to control any exchange rate risk incurred from this transaction. To hedge the exchange rate risk, New Tech Corporation buys a six-month put option on US dollars, with a strike price £0.80/US$ for a premium of £0.06/US$. At the moment, the spot exchange rate is US$1.3220/£ and the six-month forward rate is US$1.5235/£. Assume the six-month effective interest rate in U.K. is 0.5% per annum and in U.S. is 1.5% per annum.

(a) If New Tech Corporation uses money market instruments to hedge exchange rate risk, elaborate how the Corporation implement and assess the sterling proceeds incurred.

(b) New Tech Corporation treats the forward exchange rate as an unbiased predictor of the future spot exchange rate, what would be the proceeds this time with using put options on US dollars?

(c) Jeff is the financial manager of New Tech Corporation, he stated that there will be no difference between the option and money market hedge for the corporation. Explain and analyze Jeff’s belief. Provide any necessary calculation

a. Calculate the debt ratio and the times interest earned ratio for each company. In what way are these companies similar in terms of their debt? usage, and in what way are they very? different?

b. Calculate the ratio of interest expense to total liabilities for each company.? Conceptually, what do you think this ratio is trying to? measure? Why are the values of this ratio dramatically different for these two?forms? Suggest some reasons.

a. The debt ratio for Estee Lauder is

The debt ratio for e.l.f. Beauty is

?(Round to three decimal? places.)The times interest earned ratio for Estee Lauder is

?(Round to three decimal? places.)The times interest earned ratio fore.l.f. Beauty is

?(Round to three decimal? places.)

In what way are these companies similar in terms of their debt? usage, and in what way are they very?different????(Select the best answer? below.)

A.a

B.c

C.d

D.b

b. The ratio of interest expense to total liabilities for Estee Lauder is

?(Round to three decimal?places.)The ratio of interest expense to total liabilities for e.l.f. Beauty is

nothing.

?(Round to three decimal? places.)

?Conceptually, what do you think this ratio is trying to? measure? Why are the values of this ratio dramatically different for these two? forms????(Select the best answer? below.)

A.d

B.b

C.a

D.c

One former MSU student decided to open a lawn service and landscaping company.            During the first year, she paid rent of $5,000, wages to employees of $50,000, and $10,000            for supplies (gas, oil, and so on). To start this business, she quit her previous job that had paid her $40,000 per year. Her mother invested $10,000 in the business, which was used to           acquire equipment. The company earned $106,000 in revenue in the first year.

3i.        The private explicit cost in the first year is

            ____________________

3ii.       If the average investment in the economy earned a 10% return this year, implicit private cost            for this business is

            ____________________

3iii.      Which is a correct statement about the economic profits of the business in the first year?

            a.         If the average investment in the economy earns a 10% return, economic profits were                                     zero.

            b.         The investor in this business earned a 10% return on investment in the first                                        year.

.           c.         This lawn/landscaping business would have had negative economic profits if the                               average investment in the economy generated a 15% return that year.

            d.         All of the above are correct.

            e.         None of the above is correct.

3iv.      Suppose the state government levied an “environmental tax” on this lawn/landscape business equal to $1,000 per year. The effect of the tax is to

            a.         increase the firm’s average cost, but not the marginal cost.

            b.         increase private implicit cost.

            c.         increase variable cost, but not fixed cost.

            d.         increase social cost, but not private cost.

            e.         have no effect on cost.