330 Menomonie Casino Company earned 23458933 before interest

3.30 Menomonie Casino Company earned $23,458,933 before interest and taxes for the fiscal year ending March 31, 2014. If the casino had interest expenses of $1,645,123, calculate its tax burden using Exhibit 3.6. What are the marginal and the average tax rates for this company? 0 EBIT Interest expenses 23,458,933 1,645,123 4 0 Tax schedule US Federal Corporate Income Tax Rates for 2013 Upto 50,000 75,000 75001 $100.000 100,001 S 335,000 335,001 S 10,000,000 10,000,001 $ 15,000,000 15,000,001 $ 18,333,333 Rate 15% 25% 34% 39% 34% 35% 38% 35% Taxable Income from 50,001 $ 18333,334$ 3 #3.24 #3.261 #3.29| #3.30 -- EXAMPLE : #31 : #31 0wg

Solution

Earning Before Tax (EBT) = EBIT - Interest Expenses

EBT = $23,458,933 - $1,645,123 = $21,813,810

From the Exhibit 3.6 given in the question, the company\'s marginal tax rate for the company is 35%. The tax burden of the company is calculated as follows:-

on first 50,000 @ 15% = $7,500

on next 25,000 (75,000-50,000)@25% = $6,250

on next 25,000 (100,000-75,000)@34% = $8,500

on next 235,000 (335,000-100,000)@39% = $91,650

on next 9,665,000 (10,000,000-335,000)@34% = $3,286,100

on next 5,000,000 (15,000,000-10,000,000)@35% = $1,750,000

on next 3,333,333 (18,333,333-15,000,000)@38% = $1,266,667

on last 3,480,477 (21,813,810-18,333,333)@35% = $1,218,167

Total tax burden = $7,500+$6,250+$8,500+$91,650+$3,286,100+$1,750,000+$1,266,667+$1,218,167

= $7,634,834

Average tax rate = (Total tax burden/EBT)*100 = ($7,634,834/$21,813,810)*100

= 35%