Chapter 2 HW Solutions

# Chapter 2 HW Solutions - 3 Marginal Tax Rates Solution...

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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 step-up 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 after-tax 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 after-tax 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 after-tax cash inflow (\$4,293 - \$3,750). c.

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Chapter 2 HW Solutions - 3 Marginal Tax Rates Solution...

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