Chapter 3, Problem 13AP

Company J must choose between two alternate business expenditures. Expenditure 1 would require an $80,000 cash outlay, and Expenditure 2 requires a $60,000 cash outlay. Determine the marginal tax rate at which the after-tax cash flows from the two expenditures are equal assuming that:

1. a. Expenditure 1 is fully deductible and Expenditure 2 is nondeductible.
2. b. Expenditure 1 is 50 percent deductible and Expenditure 2 is nondeductible.
3. c. Expenditure 1 is fully deductible and Expenditure 2 is 50 percent deductible.