Homework Answers
a.After tax profit = Profit before tax(1-Tax rate)
= 1,100,000*(1-10%)
= $990,000
b.After tax profit = 1,060,000(1-2%) = $1,038,800
a.If sent in December = 32000(1-37%) = $20,160
In January = 32,000(1-37%) = 20,160
a.After tax return on taxable bond = 8.20%(1-22%) = 6.396%
Choose taxable bond
b.After tax return = 8.20%(1-32%) = 5.576%
Choose Municipal bond
c.Indifference tax rate = 8.20%(1-x) = 6.15%
1-x = 0.75
X = 25%
Hence, indifference tax rate = 25%
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