Business Finance Ch.2 Homework

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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