1. Name 3 new tax law changes as it relates to Individual Tax Payers?
2. Name 3 new tax law changes as it relates to Corporate Tax Payers?
3. What is the new “Pass thru” tax deduction? Which entities does it apply to?
4. Do you think that by reducing the corporate tax rate it will help or hurt the United States?

The 2019 demand and supply for Montreal cannabis are:

Demand: P=100-x

Supply: P=10+x

As a result of a successful trade mission to New Zealand, it has agreed to buy Montreal cannabis. Their demand is:

P=80-2x

What are the economic effects of this trade? Show diagram.

Original Price and output? New price and output? Consumption by Montreal? Consumption by New Zealand?

At year-end 2018, Wallace Landscaping’s total assets were $1.73 million, and its accounts payable were $400,000. Sales, which in 2018 were $2.1 million, are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $540,000 in 2018, and retained earnings were $370,000. Wallace has arranged to sell $55,000 of new common stock in 2019 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2019. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 3%, and 50% of earnings will be paid out as dividends.

How much new long-term debt financing will be needed in 2019? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar.

The beta of the equity of CDE Company is 1.67 and CDE has a debt-to-equity ratio of 0.67 calculated at market values. The debt is risk-free and perpetual. CDE generates annual EBIT of $100 and has 100 shares of common stock outstanding. The expected return on the market portfolio is 15% and the risk-free interest rate is 5%. The corporate tax rate is 30%. Assume that personal taxes and bankruptcy costs are not relevant.

1. Compute the current market value of CDE Company.

2. CDE is considering an expansion project that will require an initial investment of 133.33. This expansion project is estimated to increase the firm’s annual EBIT by 20%. Determine the new value of CDE if it undertakes the investment and finances it 100% with debt, permanently altering its leverage. Also find the new value of the equity and the new share price.

3. If the investment in part 2 is financed entirely with new equity, how many shares must be issued? What is the new equilibrium price of the shares?

4. Should CDE undertake the project? Hint: Is the new value of the firm greater then the old value of the firm plus the investment?

Newtel Inc. manufactures Cell phones. Last year Newtel sold 30,000 phones at $80 each. Total costs amounted to $1,800,000 of which $600,000 were considered fixed.

In an attempt to improve its product, the company is considering replacing a component part that has a cost of $16 with a new and better part costing $26 per unit in the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $100,000 with a useful life of five years and a $20,000 salvage value. The company uses straight-line depreciation on all plant assets. (Ignore company tax.)

Required:

1. Calculate in units, Innovation's break-even point for last year.
2. Calculate the number of units that the company would have had to sell in the last year to earn $ 200,000. Prove your answer.
3. If Newtel increases the selling price by $20, and purchases the new part and the new machine, calculate the new contribution margin , the new fixed cost & the   number of units that the company will have to sell to make the same net income as last year.

1) Summarize and discuss the benefits of the new tax policy. Who are the winners? And who are the losers? Does the new tax policy help the most vulnerable segment of our society?

2) Was the new tax policy written taking our diverse community into account? What would you do differently regarding the process of drafting the tax policy and eliminating any potential negative unintended consequences? How do you help local communities engage in policy related matters (such as tax policy) that affect their daily lives?

3) How would the government pay for the tax plan? Does the level of the U.S national debt concern you? Discuss the different views on the link between the new tax policy and national debt?

4) Discuss the impact of U.S new tax policy on developing economies? Should we care about other economies while reforming our tax policy? Explain.

5) What does the new tax policy mean to you? How do you intend to engage in economic policy matter in the future?

I am considering purchasing a new golf ball manufacturing machine. The total installed cost of this lovely piece of equipment is $2.2 million. My existing machine cost me $1 million 10 years ago, currently has no book value ($0) & a competitor will pay me $1.2 million for it before taxes but I am subject to a 40% tax rate.

            Because of this new piece of equipment, my annual sales for the next 5 years are expected to be $900,000 more than what I am currently making with my current equipment. Expenses (for the new equipment) will amount to 50% of that increased revenue. I will undergo no change in net working capital & will depreciate the new equipment using a 5 year-recovery period under MACRS. My cost of capital is 11% & there is no terminal cash flow expected.

Determine my initial investment for the new equipment

Determine my Operating cash inflows for the new equipment (consider depreciation in year 6)

What’s my payback period?

What’s the NPV?

What’s the IRR? (to the nearest whole number)

                  Assume a firm has cash of $10 and a project that is either worth $130 or $80 (50% chance of each). The firm owes $110 to the bank. Similar to the example in class, the following shows the value of assets, debt, and equity where the amounts are calculated based on expected values.

Assume the firm is considering a new project which requires an initial investment of $5. If the new project is accepted, the $5 will be paid for using the firm’s cash. The new project has a $10 cash flow in the good state (i.e., increasing the “project” cash flows in the good state from $130 to $140). In the bad state, the new project’s cash flow is -$10 (i.e., decreasing the “project” cash flows in the bad state from $80 to $70). What is the expected value of the firm’s equity if the firm decides to accept this new project?

Refer back to the facts in the previous problem. What is the expected value of the firm’s debt if the firm decides to accept this new project?

The office product division in Hulk Company reported $11,250 net operating income with $75,000 average operating assets this year. The office product division has a new investment opportunity that would increase net operating income by $4,375 with $35,000 additional investment.

(Q) Which of the following statements is TRUE given that the company's minimum required rate of return is 10%?

• If the division is evaluated on the basis of Residual income, the manager of the office product division would accept the new investment because it is good for the division.

• If the division is evaluated on the basis of ROI, the manager of the office product division would accept the new investment because it is good for the division.

• If the division is evaluated on the basis of ROI, the manager of the office product division would not accept the new investment because it is bad for the company.

• If the division is evaluated on the basis of Residual income, the manager of the office product division would not accept the new investment because it is bad for the company.

• Regardless of whether the division is evaluated on the basis of ROI or Residual income, the manager will not accept the new investment because it is bad for the company.