Problem:
New Hope Managed Care Inc. is a for-profit managed care company that serves the southwest United States. Last year, it reported $1,200,000 in income from operations, $250,000 in interest income from bonds it bought in the previous year, and $60,000 in dividend income from shares in a large drug company.
New Hope also has $200,000 in surplus funds that it is considering investing in bonds that pay interest of $10,000 per year or stock that pays dividends of $9,000 per year.
Required:
Question 1: What is New Hope's tax liability?
Question 2: What is New Hope's marginal tax rate? Average tax rate?
Question 3: Should New Hope invest its surplus funds in bonds or stock?
Note: Provide support for your rationale.