Corporation AB’s marginal tax rate is 15 percent, and Corporation YZ’s marginal tax rate is 35 percent.
a. If both corporations are entitled to an additional $5,000 deduction, how much tax savings will the deduction generate for each corporation?
b. If both corporations are entitled to a $5,000 tax credit, how much tax savings will the credit generate for each corporation? (Assume that each corporation’s pre-credit tax exceeds $5,000.)