# B plot the marginal tax rates measured on the y axis

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b.Plot the marginal tax rates (measured on the y axis) against the pretax income levels(measured on the x axis). Explain the relationship between these variables.
CHAPTER 2 AND 36024681012024681012Marginal Tax Rate x Pretax IncomePretax Income Level (\$000)Marginal Tax Rate (%)As income increases to \$335,000, the marginal tax rate approaches and peaks at 39%. Forincome in excess of \$335,000, the marginal tax rate declines to 34%, and after \$10million, the marginal rate increases slightly to 35%.P2–4 Interest versus dividend income. During the year just ended, Shering Distributors, Inc., hadpretax earnings from operations of \$490,000. In addition, during the year it received \$20,000 inincome from interest on bonds it held in Zig Manufacturing and received \$20,000 in incomefrom dividends on its 5% common stock holding in Tank Industries, Inc. Shering is in the 40%tax bracket and is eligible for a 70% dividend exclusion on its Tank Industries stock.a.Calculate the firm’s tax on its operating earnings only.
b.Find the tax and the after-tax amount attributable to the interest income from ZigManufacturing bonds.
CHAPTER 2 AND 37c.Find the tax and the after-tax amount attributable to the dividend income from the TankIndustries, Inc., common stock.
d.Compare, contrast, and discuss the after-tax amounts resulting from the interest incomeand dividend income calculated in parts b and c.
e.What is the firm’s total tax liability for the year?
P2–5 Interest versus dividend expense Michaels Corporation expects earnings before interest andtaxes to be \$40,000 for the current period. Assuming an ordinary tax rate of 40%, compute thefirm’s earnings after taxes and earnings available for common stockholders (earnings after taxesand preferred stock dividends, if any) under the following conditions:a.The firm pays \$10,000 in interest.
CHAPTER 2 AND 38

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