# Question: Suppose the tax rate is 0 for taxable income less

Suppose the tax rate is 0% for taxable income less than $ 0 (again no tax refunds for losses and no NOL carry back or carry forwards). For positive taxable income up to and including $ 25,000, the tax rate is 15%; for taxable income greater than $ 25,000 but less than $ 50,000, the tax rate is 25%; and for taxable income greater than $ 50,000, the tax rate is 34%. Calculate the expected tax payable for the following two projects. Explain and discuss your results.

a. 50% chance of $ 100,000 and a 50% chance of loss of $ 50,000

b. 50% chance of $ 75,000 and a 50% chance of loss of $ 25,000

a. 50% chance of $ 100,000 and a 50% chance of loss of $ 50,000

b. 50% chance of $ 75,000 and a 50% chance of loss of $ 25,000

**View Solution:**## Answer to relevant Questions

Suppose the tax rate is 30% if taxable income is positive and 0% if taxable income is negative. Consider the before tax payoffs to the following three projects: a. Riskless: 10% for sure b. Moderately risky: 30% half the ...An owner manager of a firm is contemplating selling it to any one of a number of prospective buyers. The firm has net operating loss carryforwards (NOLs) known to be worth $ 50 million more to the buyers than to the seller. ...How is the marginal tax rate affected by the presence of rules that reduce current tax deductions by a fraction of incremental income? How is the marginal tax rate affected by the presence of rules that postpone current tax ...Suppose a firm is equally likely to earn $2 million this year or lose $3 million. The firm faces a tax rate of 40% on each dollar of taxable income, and the firm pays no taxes on losses. In this simple one-period scenario, ...An electric utility company recently issued $25 million of mandatory redeemable preferred stock that is redeemable in 10 years. In its audit, the IRS wishes to classify the preferred stock as debt. This reclassification ...Post your question