The average tax rate is calculated by dividing taxes

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The average tax rate is calculated by dividing taxes paid by taxable income. For firms with taxable income of $10 million or less, it ranges from 15% to 34%. For firms with taxable income in excess of $10 million, it ranges between 34% and 35%. The marginal tax rate is the rate at which additional income is taxed. 26. Dividends received from another corporation, in which the shareholding firm’s position is less than one-fifth of outstanding shares, is subject to a 70% exclusion for tax purposes. The tax rate is only 30% of what it would be on fully taxable income. 27. The tax deductibility of corporate expenses reduces their actual after-tax cost. Corporate interest is a tax-deductible expense, while dividends are not.
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10 Gitman • Principles of Managerial Finance, Twelfth Edition Suggested Answer to Critical Thinking Question for Focus on Practice Box The share price of BRKA has never been split to make the shares more affordable to average investors. Why might the company refuse to split its shares to make them more affordable to average investors? The primary reason that Berkshire Hathaway does not split the price of its common stock is because Warren Buffett’s philosophy is that a stock split is meaningless financially and only serves as a way to lower the stock price so that more investors are able to purchase the stock. Mr. Buffett has stated his belief that true investors are long-term investors who hold a stock through thick and thin. With fewer shareholders, there are less people that the company management must answer to and investors who can afford the steep price of the Berkshire Hathaway stock are likely to be serious individual investors or institutional investors such as mutual funds. Suggested Answer to Critical Thinking Question for Focus on Ethics Box List three of four basic ethics “lessons” that might be said to form the basis of your ethical foundation. Students will have a variety of ethics lessons. Use their experiences as an opportunity to highlight the importance of ethical conduct. Answers to Warm-Up Exercises E1-1. Comparison of advantages and disadvantages of a partnership vs. incorporation. Answer: While Jack and Ann disagree over whether or not their firm should incorporate or remain as a partnership, each form of business organization has its advantages and disadvantages. One advantage of a partnership is that income is taxed at each partner’s individual tax rate that includes 10%, 15%, 25%, and higher rates up to a top rate of 35% while corporate rates are 15%, 25%, and 34% with a top rate of 39%. The corporation is allowed to retain accumulated taxable income, but for a personal service corporation such as Jack and Ann’s tax preparation service, there is an additional tax, called an accumulated earnings tax, of 15% for accumulated taxable income in excess of $150,000. If corporate earnings are paid out as salary, Jack and Ann will pay their individual rates as they do on their partnership earnings. If some of the
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