Examples 12-2 and 12-3 in this chapter concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporation’s marginal tax rate. In Example 12-2, in which the marginal tax rate was 40 percent, the conclusion was to accept Alternative 1. In Example 12-3, in which the marginal tax rate was 25 percent, the conclusion was to accept Alternative 2. Determine the marginal tax rate at which the two alternatives would be economic equivalents; i. e., they would “break even” and generate the same excess after---tax payoff over after---tax cost. Your answer should be based on all conditions and assumptions stated in Examples 12-2 and 12-3.
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