Using the corporate tax rate schedule given in Table 2.1, perform the following: a. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1.5 million; $10 million; and $20 million. b. Plot the average tax rates (measured on the y axis) against the pretax income levels (measured on the x axis). What generalization can be made concerning the relationship between these variables?
Using the corporate tax rate schedule given in Table 2.1, perform the following: a. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1.5 million; $10 million; and $20 million. b. Plot the average tax rates (measured on the y axis) against the pretax income levels (measured on the x axis). What generalization can be made concerning the relationship between these variables?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Using the corporate tax rate schedule given in Table
2.1, perform the following:
a. Calculate the tax liability, after-tax earnings, and
average tax rates for the following levels of corporate
earnings before taxes: $10,000; $80,000; $300,000;
$500,000; $1.5 million; $10 million; and $20 million.
b. Plot the average tax rates (measured on the y axis)
against the pretax income levels (measured on the x
axis). What generalization can be made concerning
the relationship between these variables?
Table 2.1
Tax calculation
Range of taxable income
Base tax
(Marginal rate X amount over base bracket)
2$
0 to $
50,000
$
(15%
amount over
2$
0)
50,000 to
75,000
7,500
(25
amount over
50,000)
75,000 to
100,000
13,750
(34
amount over
75,000)
100,000 to
335,000
22,250
(39
amount over
100,000)
335,000 to
10,000,000
113,900
(34
amount over
335,000)
10,000,000 to
15,000,000
3,400,000
(35
amount over
10,000,000)
15,000,000 to
18,333,333
5,150,000
(38
amount over
15,000,000)
Over 18,333,333
6,416,667
(35
amount over
18,333,333)
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