Using the corporate tax rate schedule given in Table 2.1, perform the following:

a. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1.5 million; $10 million; and $20 million.

b. 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?

Table 2.1

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Tax calculation Range of taxable income 50,000 (Marginal rate X amount over base bracket) Base tax 0) 0 to $ amount over $ 2$ (15% (25 50,000) 75,000) 100,000) 335,000) 10,000,000) 15,000,000) amount over 50,000 to 75,000 7,500 (34 (39 (34 (35 (38 (35 amount over 75,000 to 100,000 13,750 amount over 335,000 100,000 to 22,250 amount over 335,000 to 10,000,000 113,900 10,000,000 to amount over 3,400,000 15,000,000 amount over 5,150,000 15,000,000 to 18,333,333 Over 18,333,333 amount over 6,416,667 18,333,333) + + + +