Average corporate tax rates Using the corporate tax rate sch

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

Solution

$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%