Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable

Question

Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $12,000.

a. By how much the additional project will increase Able Co.'s taxes?

b. By how much the additional project will increase Able Co.'s taxes?

Taxable income                                                          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%                                         

Explanation / Answer

A
Able Co.'s present income is $218000, hence its income tax rate is 39%
Hence, increase in taxable income = 12000*39% = $4680

B

Able Co.'s present income is $5600000, hence its income tax rate is 34%
Hence, increase in taxable income = 12000*34% = $4080

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