3.
Marginal Tax Rates
Solution:
Currently, Beta Corporation’s marginal tax rate is 34%.
Beta’s income would need
to exceed $10,000,000 to stepup to the next tax bracket.
Therefore, Beta Corporation should
use a 34% marginal tax rate in evaluating a project that would generate an additional
$200,000 in income.
4.
Marginal Tax Rates
Solution:
Maria should use a 25% tax rate because her income is between $34,000 and
$82,400.
Her tax savings will be $500 ($2,000 deduction x 25%).
31.
Timing Issues
Solution:
a.
Monico should wait to bill its customers until the end of December.
If
Monico’s marginal tax rate is 25%, taxes paid this year would cost $1,250
($5,000 x 25%) resulting in an aftertax cash inflow of $3,750 ($5,000 –
$1,250).
When considering the time value of money, the cost of the taxes that
are deferred until next year will have a present value (cost) of only $1,179
($1,250 x .943 PV factor) or $71 less ($1,250  $1,179).
b.
Monico should defer billing its customers. If Monico’s marginal tax rate is
15% next year, then its aftertax cash inflow would be $4,293 [$5,000 –
($5,000 x 15% x .943 PV factor)].
Monico should defer billing its customers
because this will result in a $543 higher aftertax cash inflow ($4,293 
$3,750).
c.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 Staff
 Marginal Tax Rate, Net Present Value, Kimo

Click to edit the document details