Average corporate tax rates Using the corporate tax rate schedule given here a.

Question

Average corporate tax rates Using the corporate tax rate schedule given here a. Qalculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $7,500; $78,800; $297,000; $496,000 3 million; $9.9 million; and $19.8 million. Plot the average tax rates (measured on the y axis) against the pretax income levels (measured on the x axis). What generalization can be made concerning the relationship between these variables? a. Find t and $19.8 ilio More Info The tax The afte Corporate Tax Rate Schedule Tax calculation Range of taxable income Base tax (Marginal rate xamount over base bracket) $0 to 50,000 to 75,000 to 100,000 to 335,000 to 10,000,000 to 15,000,000 to Over 18,333,333 S50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 $0 + (15% x amount over 7.500 + (25% x amount over 13,750 + (34% x amount over 22,250 + (39% x amount over 113.900 + (34% x amount over 3.400.000 + (35% x amount over 5.150.000 + (38% x amount over 6.416.667 + (35% x amount over 50) 50,000) 75,000) 100,000) 335,000) 10,000,000) 15,000,000) 18,333,333) Print Done

Explanation / Answer

$7,500: Tax liability: $7,500 * 0.15 = $1,125

After-tax earnings: $7,500 – $1,125 = $6,375

Average tax rate: $1,125 ÷ $7,500 = 15%

$78,800: Tax liability: $13,750 + [0.34 (78,800 – $75,000)]

$13,750+ 1292

Total tax =$15,042

After-tax earnings: $78,800 – $15,052 = $63,748

Average tax rate: $15,042 ÷ $78,800 = 19.09%

$297,000: Tax liability: $22,250 + [0.39 ($297,000 – $100,000)]

= $22,250 + (0.39 * $197,000)

= $22,250 + $76,830

Total tax= $99,080

After-tax earnings: $297,000 – $99,080 = $197,920

Average tax rate: $99,080 ÷ $297,000 = 33.36%

$496,000: Tax liability: $113,900 + [0.34 ($496,000 – $335,000)]

= $113,900 + (0.34 * $161,000)

= $113,900 + $54740

Total tax = $168,640

After-tax earnings: $496,000 – $168,640 = $327,360

Average tax rate: $168,640 ÷ $496,000 = 34%

$1,300,000: Tax liability: $113,900 + [0.34 ($1,300,000 – $335,000)]

= $113,900 + (0.34* $965,000)

= $113,900 + $328100

Total tax = $442,000

After-tax earnings: $1,300,000 – $442,000 = $858,000

Average tax rate: $442,000÷ $1,300,000 = 34%

$9,900,000: Tax liability: $113,900 + [0.34 ($9,900,000 – $335,000)]

= $113,900 + (0.34 *$9,565,000)

= $113,900 + $3,252,100

Total tax = 3366000

After-tax earnings: $9,900,000 – $3,366,000 = $6,534,000

Average tax rate: $3,366,000 ÷ $9,900,000 = 34%

$19,800,000: Tax liability: $6,416,667 + [0.35 * ($19,800,000 – $18,333,333)]

= $6,416,667 + (0.35* $1,466,667)

= $6,416,667 + 513333.45

Total tax = $ 6930000

After-tax earnings: $19,800,000 – $6,930,000 = $12870000

Average tax rate: $6,930,000 ÷ $19,800,000 = 35%

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