A type of long-term financing used by both corporations and ...

[fox]

A type of long-term financing used by both corporations and government entities is ________.
 
  A) common stocks
  B) bonds
  C) preferred stocks
  D) retained earnings

Question 2

A mixer was purchased two years ago for 120,000 and can be sold for 125,000 today. The mixer has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gain.
 
  (a) Compute recaptured depreciation and capital gain (loss), if any.
  (b) Find the firm's tax liability.

[IRincones]

Answer to Question 1

B

Answer to Question 2

(a) Book Value = 120,000 (1 - 0.20 - 0.32 ) = 57,600
Recaptured depreciation = 125,000 - 57,600 = 67,400
Capital gain = 125,000 - 120,000 = 5,000
72,400
(b) Tax liability = 72,400  0.40 = 28,960

[fox]

Thank you

[IRincones]

No problemo