1. A corporation with a taxable income of $50 million is considering a new ventu
ID: 2716819 • Letter: 1
Question
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.
Explanation / Answer
This is a multiple question. Please put up single or a maximum of 2 questions only.
1> Missing tax rate. However assuming a 35% corporate tax rate
Additional tax paid = 500000 8 35% = 175,000
2> Addtional cash after state taxes = 4000 * ( 1 - 0.09 ) = 3640
Additional cash after federal taxes = 3640 ( 1 - 0.28 ) = 2620.80
3> Depreciation per year under SLM = ( 10000 - 2000 ) / 5 = 1600
Therefore depreciation for 3rd year = 1600
4> Tax saving in above Q due to depreciation = 1600 * 35% = 560.00
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