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Use the following tax rates to answer questions Also, assume the business has taxable income of $150,000. Taxable Income Tax Rate $ 0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% 1) How much tax will this company pay based on the information above. 2)What is the average tax rate paid by the the taxpayer? 3)What is the "Marginal Tax Rate" for this taxpayer at this level of income? 4)At this marginal tax rate, how much additional tax will this taxpayer pay on an additional $10,000 of taxable income?

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019
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1. Based on the corporate tax table below, what is the average tax rate for a firm with $120,000 taxable income? Taxable Income Marginal Tax Rates $0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% 335,001 - 10,000,000 34% 10,000,001 - 15,000,000 35% 15,000,001 - 18,333,333 38% 18,333,334 + 35%

2. When is it appropriate to include sunk costs in the evaluation of a project?

Include sunk costs if they are considered to be overhead costs

It is never appropriate to include sunk costs

Include sunk costs if they improve the project’s NPV

Include sunk costs when they are relatively large

3. A firm has a piece of land that was unused, but plans to build a new office complex on it in a new capital project. The market value of the land should be considered as a component of project cash flows provided that the land:

has been fully depreciated as the market value a sunk cost.

can be depreciated going forward.

has the same market value as the book value.

has identifiable market value as it is an opportunity cost.

1. A corporation with a taxable income of $50 million is considering a new venture that would generate an additional $500,000 per year in taxable income. How much additional federal income tax will they pay on this additional income?

2. Susan has a marginal federal income tax rate of 28% and a marginal state income tax rate of 9%. If she earns an additional $4,000 job by working overtime, how much additional cash will she have after taxes?

3. A business purchases some equipment for $10,000 and depreciates it over a 5-year period using straight-line depreciation. The salvage value at the end of Year 5 is $2,000. What is the depreciation charge for Year 3?

4. The company described in the previous question has a marginal federal tax rate of 35%. Compute the reduction in their federal income tax during Year 3 due to that year's deprecation on the equipment.

1. Which of the following would result in a decrease in cash flow and a use of cash? A. A decrease in notes payable B. An increase in long-term debt C. A decrease in inventory D. A decrease in common stock

2. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded an average rate of A. 15%. C. 39%. B. 35%. D. 34%.

3. A firm has assets of $60,000 and owners’ equity of $33,000. Which of the following is the correct balance of the firm’s liabilities? A. $33,000 C. $93,000 B. $27,000 D. $60,000

4. Which of the following would result in an increase in cash flow and a source of cash? A. A decrease in notes payable B. A decrease in long-term debt C. An increase in inventory D. An increase in common stock

5. A firm has current assets of $10,000 and current liabilities of $7,000. Which of the following is the correct net working capital for the firm? A. $10,000 C. $3,000 B. $7,000 D. $13,000

6. If a firm has an accounts receivable balance of $18,800 at the end of 2007 and $16,500 at the end of 2008, which of the following statements about accounts receivable is correct? A. Accounts receivable decreased by $2,300 and represented a use of cash. B. Accounts receivable increased by $2,300 and represented a source of cash. C. Accounts receivable decreased by $2,300 and represented a source of cash. D. Accounts receivable increased by $2,300 and represented a use of cash.

7. If a firm has revenues of $15,090 and expenses of $8,850, what is the firm’s taxable income? A. $15,090 C. $6,240 B. $8,850 D. $23,940

8. Which of the following statements about the issuance of an initial public offering (IPO) is correct? A. IPOs may be either underpriced or overpriced. B. IPOs are never overpriced. C. IPOs are never underpriced. D. IPOs are always correctly priced.

9. If a firm has revenues of $15,090, operating expenses of $8,850, and a tax expense of $2,120, what is the firm’s net income? A. $8,850 C. $6,240 B. $4,120 D. $8,360

10. When you’re preparing a common-sized balance sheet, which of the following measures is set to equal 100 percent? A. Total liabilities C. Total owners’ equity B. Total assets D. Cash Examination, Lesson 1 35

11. Suppose that a corporation has a taxable income of $200,000. What is the firm’s corporate income tax for the current tax year? (You can use the following table to calculate the firm’s U.S. federal corporate tax.) Taxable Income More Than Taxable Income Less Than Tax Rate $0 $50,000 15% $50,001 $75,000 25% $75,001 $100,000 34% $100,001 $335,000 39% $335,001 $10,000,000 34% $10,000,001 $15,000,000 35% $15,000,001 $183,333,334 38% $18,333,334 35% A. $78,000 C. $39,000 B. $6,250 D. $61,250

12. Using the same table and information provided in Question 11, what is the firm’s average tax rate? A. 39% C. 34% B. 30.625% D. 31.625%

13. Using the same table and information provided in Question 11, what is the firm’s marginal tax rate? A. 39% C. 34% B. 30.625% D. 31.625%

14. Dilution refers to the loss of shareholder value, and may be represented by all of the following except dilution of A. ownership percentage. B. market value. C. the firm’s current ratio. D. book value per share.

15. If a firm has $6,940 in earnings before interest and taxes, $650 in depreciation expense, and $2,120 in taxes, what is the firm’s operating cash flow? A. $4,120 C. $6,240 B. $5,470 D. $9,710

16. The type of financial statement that summarizes the sources and uses of cash over a specified period of time is called the A. statement of cash flows. B. income statement. C. balance sheet. D. inventory ratio statement.

17. The current ratio falls within which of the following classifications of financial ratios? A. Long-term solvency measures B. Asset management or turnover measures C. Short-term solvency or liquidity measures D. Profitability measures

18. If a firm has an accounts payable balance of $34,400 at the end of 2007 and $31,200 at the end of 2008, which of the following statements about accounts payable is correct? A. Accounts payable decreased by $3,200 and represented a use of cash B. Accounts payable increased by $3,200 and represented a source of cash C. Accounts payable decreased by $3,200 and represented a source of cash D. Accounts payable increased by $3,200 and represented a use of cash

19. Which of the following is not one of the six costs of issuing securities? A. Rights offering C. Green Shoe option B. Abnormal returns D. Gross spread 20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of A. 15%. C. 39%. B. 35%. D. 34%.

20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of A. 15%. C. 39%. B. 35%. D. 34%.

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