Answered

Westonci.ca is the trusted Q&A platform where you can get reliable answers from a community of knowledgeable contributors. Our platform provides a seamless experience for finding reliable answers from a knowledgeable network of professionals. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.

Company J must choose between two alternative business expenditures with the following cash flows:

Expenditure 1: $80,000 cash outflow
Expenditure 2: $60,000 cash outflow

Required:
a. Determine the marginal tax rate at which the after-tax cash flows from the two expenditures are equal assuming that Expenditure 1 is fully deductible and Expenditure 2 is non deductible.
b. Determine the marginal tax rate at which the after-tax cash flows from the two expenditures are equal assuming that Expenditure 1 is 50 percent deductible and Expenditure 2 is nondeductible.
c. Determine the marginal tax rate at which the after-tax cash flows from the two expenditures are equal assuming that Expenditure 1 is fully deductible and Expenditure 2 is 50 percent deductible.

Sagot :

abiolataiwo2015

Answer:

A. 25%

B. 50%

C. 40%

Explanation:

A. Calculation to determine the marginal tax rate assuming that Expenditure 1 is fully deductible and Expenditure 2 is non deductible

Lets marginal tax rate be X%

Marginal tax rate =$80,000 - [$80,000*X%] = 60,000$

Marginal tax rate =$80,000*X% = $80,000-$60,000

Marginal tax rate =$80,000*X% =$20,000

Marginal tax rate =X= $20,000/$80,000

Marginal tax rate =X= 25%

Therefore the marginal tax rate assuming that Expenditure 1 is fully deductible and Expenditure 2 is non deductible will be 25%

b. Calculation to Determine the marginal tax rate

assuming that Expenditure 1 is 50 percent deductible and Expenditure 2 is nondeductible.

Marginal tax rate=$80,000 - [$80,000*50%*X%] =$ 60,000

Marginal tax rate=$40,000*X%=$20,000

Marginal tax rate=X%=50%

Therefore the marginal tax rate

assuming that Expenditure 1 is 50 percent deductible and Expenditure 2 is nondeductible will be 50%

c.Calculation to determine the marginal tax assuming that Expenditure 1 is fully deductible and Expenditure 2 is 50 percent deductible.

Marginal tax rate=$80,000- [$80,000*X] = $60,000 - [$60,000*50%*X]

Marginal tax rate=$80,000-$60,000 = [$80,000*x] - [$30,000*x]

Marginal tax rate=$20,000 =$50,000X

Marginal tax rate=X=$20,000/$50,000

Marginal tax rate=X=40%

Therefore the marginal tax assuming that Expenditure 1 is fully deductible and Expenditure 2 is 50 percent deductible will be 40%

Thank you for your visit. We are dedicated to helping you find the information you need, whenever you need it. We appreciate your time. Please come back anytime for the latest information and answers to your questions. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.