Question

Problem 03.08 (Algo) (LO 3-2) Company P must choose between two alternate varsactions. The cash gereed by constante, and the oth gener by Transaction 2 is nontaxable. Required: a. Determine the marginal tax rate at which the aher-tax cash flows from the transactions are not generates $112.000 of income and Transaction 2 generates $90.720 of income b. Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal assuming the Taction generates $201.000 of income and Transaction 2 generates $138.690 of income Complete this question by entering your answers in the tabs below Required A Required B Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal assuming that Transaction 1 generates $112.000 of income and Transaction 2 generates $90.720 of income. Marginal tax rate 1% Required Required) Next > 13 of 25 < Prev

Answer 1

Marginal Tax Rate = (Transaction 1 - Transaction 2)/ Transaction 1

Marginal Tax Rate = (Before Tax - After Tax )/ Before Tax

Required A :

Marginal Tax Rate = (Transaction 1 - Transaction 2)/ Transaction 1

Marginal Tax Rate = ( $ 112,000 - $90,720 )/ $ 112,000

Marginal Tax Rate = 19 %

Required B :

Marginal Tax Rate = (Transaction 1 - Transaction 2)/ Transaction 1

Marginal Tax Rate = ( $ 201,000 - $138,690 )/ $ 201,000

Marginal Tax Rate = 31%