American Corporation has two equal shareholders, Mr. Freedom and Brave, Incorporated. In addition toAmerican Corporation...
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American Corporation has two equal shareholders, Mr Freedom and Brave, Incorporated. In addition toAmerican Corporation has two equal shareholders, Mr Freedom and Brave, Incorporated. In addition to their investments in American stock, both shareholders have made substantial loans to American. During the current year, American paid $ interest each to Mr Freedom and Brave, Incorporated. Assume that American and Brave have percent tax rates, and Mr Freedom's marginal tax rate on ordinary income is percent. Required: a Calculate American's tax savings from deduction of these interest payments and their aftertax cost. b Calculate Brave's tax cost and aftertax earnings from its receipt of interest income from American. c Calculate Mr Freedom's tax cost and aftertax earnings from his receipt of interest income from American. e Recalculate Brave's tax cost and aftertax earnings assuming its receipt of interest from American is treated as a constructive dividend. f Recalculate Mr Freedom's tax cost and aftertax earnings assuming his receipt of interest from American is treated as a constructive dividend. Answer is complete but not entirely correct. their investments in American stock, both shareholders have made substantial loans to American. During the current year, American paid $ interest each to Mr Freedom and Brave, Incorporated. Assume that American and Brave have percent tax rates, and Mr Freedom's marginal tax rate on ordinary income is percent. Required: a Calculate American's tax savings from deduction of these interest payments and their aftertax cost. b Calculate Brave's tax cost and aftertax earnings from its receipt of interest income from American. c Calculate Mr Freedom's tax cost and aftertax earnings from his receipt of interest income from American. e Recalculate Brave's tax cost and aftertax earnings assuming its receipt of interest from American is treated as a constructive dividend. f Recalculate Mr Freedom's tax cost and aftertax earnings assuming his receipt of interest from American is treated as a constructive dividend. 
American Corporation has two equal shareholders, Mr Freedom and Brave, Incorporated. In addition toAmerican Corporation has two equal shareholders, Mr Freedom and Brave, Incorporated. In addition to
their investments in American stock, both shareholders have made substantial loans to American.
During the current year, American paid $ interest each to Mr Freedom and Brave, Incorporated.
Assume that American and Brave have percent tax rates, and Mr Freedom's marginal tax rate on
ordinary income is percent.
Required:
a Calculate American's tax savings from deduction of these interest payments and their aftertax cost.
b Calculate Brave's tax cost and aftertax earnings from its receipt of interest income from American.
c Calculate Mr Freedom's tax cost and aftertax earnings from his receipt of interest income from
American.
e Recalculate Brave's tax cost and aftertax earnings assuming its receipt of interest from American is
treated as a constructive dividend.
f Recalculate Mr Freedom's tax cost and aftertax earnings assuming his receipt of interest from
American is treated as a constructive dividend.
Answer is complete but not entirely correct.
their investments in American stock, both shareholders have made substantial loans to American.
During the current year, American paid $ interest each to Mr Freedom and Brave, Incorporated.
Assume that American and Brave have percent tax rates, and Mr Freedom's marginal tax rate on
ordinary income is percent.
Required:
a Calculate American's tax savings from deduction of these interest payments and their aftertax cost.
b Calculate Brave's tax cost and aftertax earnings from its receipt of interest income from American.
c Calculate Mr Freedom's tax cost and aftertax earnings from his receipt of interest income from
American.
e Recalculate Brave's tax cost and aftertax earnings assuming its receipt of interest from American is
treated as a constructive dividend.
f Recalculate Mr Freedom's tax cost and aftertax earnings assuming his receipt of interest from
American is treated as a constructive dividend.
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