4. Corporate taxes = (revenue – expenses) x corporate tax rate – tax credits. A firm’s...
4. Corporate taxes = (revenue – expenses) x corporate tax rate – tax credits. A firm’s tax rate is 20% and it can deduct any new investment from its expenses immediately. Its new investment is worth $100,000, which saves the company $X in taxes owed. What is X? Would the firm rather have a tax credit worth $30,000?
Homework Answers
4.
A firm’s tax rate is 20% and it can deduct any new investment from its expenses immediately.
New investment = 100000.
Tax saved = X = 0.20 X 100000 = 20000.
It is beneficial for firm to rather have a tax credit worth 30000 because it is greater than tax saved (20000).
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