# Business Finance Ch.2 Homework - 1 The tax bubble causes...

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1. The tax bubble causes average tax rates to catch up to marginal tax rates, thus eliminating the tax advantage of low marginal rates for high income corporations. 2 . Taxes = 0.15(\$50,000) + 0.25(\$25,000) + 0.34(\$25,000) + 0.39(\$235,000) = \$113,900 Average tax rate = \$113,900 / \$335,000 = 34% The marginal tax rate on the next dollar of income is 34 percent. For corporate taxable income levels of \$335,000 to \$10 million, average tax rates are equal to marginal tax rates. Taxes = 0.34(\$10,000,000) + 0.35(\$5,000,000) + 0.38(\$3,333,333)= \$6,416,667 Average tax rate = \$6,416,667 / \$18,333,334 = 35% The marginal tax rate on the next dollar of income is 35 percent. For corporate taxable income levels over \$18,333,334, average tax rates are again equal to marginal tax rates.

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3 . Taxes = 0.34(\$200,000) = \$68,000 \$68,000 = 0.15(\$50,000) + 0.25(\$25,000) + 0.34(\$25,000) + X(\$100,000); X(\$100,000) = \$68,000 – 22,250 X = \$45,750 / \$100,000 X = 45.75% 4. 2008 Income Statement
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Business Finance Ch.2 Homework - 1 The tax bubble causes...

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