Plastic Products Inc. has a levered beta of 1.30, a debt-equity ...

[xroflmao]

Plastic Products Inc. has a levered beta of 1.30, a debt-equity ratio of 0.50, and a tax rate of 40. What is the value of the firm's unlevered beta?
 
  A) 0.70
  B) 1.00
  C) 1.30
  D) 1.60

Question 2

How is taxable income computed?
 
  What will be an ideal response?

[nikmaaacs]

Answer to Question 1

B
Explanation: B) U = L / (1 + (D/E) (1-t)) = 1.30/(1 + .50(1-.40)) = 1.00.

Answer to Question 2

The taxable income for a corporation consists of two basic components: operating income and capital gains. Operating
income, as we have already defined, is essentially gross profits less any operating expenses, such as marketing
expenses, administrative expenses, and so forth. Capital gains occur when a firm sells a capital asset, which is any asset
that is not part of its ordinary operations. For example, when a company sells a piece of equipment or land, any gain
(sales price less the cost of the asset) is thought to be a capital gain. Also, the interest expense paid on the firm's
outstanding debt is a tax-deductible expense. However, dividends paid to the firm's stockholders are not deductible
expenses, but rather distributions of income. Other taxable income includes the interest income and dividend income
that the corporation receives.