Managerial Finance

1-5 Corporate taxes. Tantor Supply, Inc., is a small corporation acting as the exclusive distributor of a major line of sporting goods. During 2000 the firm earned $92,500 before taxes.

SOLUTIONS:

a. Calculate the firm’s tax liability using the corporate tax rate schedule given in Table 3.4.

Total tax due = $13,750+ [0.34($92,500- $75,000)]

= $13,750+ (0.34× $17,500)

= $13,750+ $5,950

= $19,700 Tax liability

b. How much is Tanto Supply’s 2000 after-tax earnings?

After tax earning = Corporate earning before tax - tax due

= $92,500 - $19,700

= $72,800

c. What was the firm’s average tax rate, based on your findings in a?

Average tax rate = Tax due ÷ Corporate earning before tax

= $19,700 ÷ $92,500 =0.2129

0.2129 x 100

= 21.3%

d. What is the firm’s marginal tax rate, based on your findings in a?

Marginal tax rate = 34%

1-6 Average corporate tax rates. Using the corporate tax rate schedule given in Table 1.4, page 29, 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; $1.5 million; and $15 million.

SOLUTIONS:

($10,000) Total tax due = $0+ [0.15× ($10,000- $0)]

= $1,500

After tax earning = Corporate earning before tax - Tax due

= $10,000 - $1,500

= $ 8,500

Average tax rate = Tax due ÷ Corporate earning before tax

= $1,500 ÷ $10,000 = 0.15...