3FIN 300 Taxes Retained Earnings Ch 3_4 - FIN 300 Fundamentals of Finance Taxes Retained Earnings Calculations Chapters 3 4 FIN 300 Fin Ratios 1

3FIN 300 Taxes Retained Earnings Ch 3_4 - FIN 300...

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FIN 300 Fundamentals of Finance Taxes & Retained Earnings Calculations Chapters 3 & 4 1 FIN 300 - Fin Ratios
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Marginal Tax Rates For example, assume that you are given the following schedule of marginal tax rates: If your firm’s taxable income is $8M, how much does the firm pay in taxes? FIN 300 - Fin Ratios 2 Income in the range Tax Rate $0 to $1M 10% >$1M to $3M 20% >$3M to $6M 30% >$6M 40%
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Marginal Tax Rates What not to do! Answer: Do not simply take 40% and multiply it by $8M to calculate a tax paid of $3.2M! These are marginal rates (think “tax brackets”) in that, starting at the 1 st dollar of income, you apply each rate to it’s specialized range of income. As follows on the next slide…. FIN 300 - Fin Ratios 3
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Marginal Tax Rates 1 st $1M in income is taxed at 10% Then, the next $2M ($3M-$1M)of income is taxed at 20% Then, the next $3M ($6M-$3M) of income is taxed at 30% Finally, the last $2M ($8M-$6M) of income is taxed at 40% Tallied-up on the next slide…..
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