Van-Line Company, a small electronics repair firm, expects an annual income of $170,000 from its regular business. The company is considering expanding its repair business to include flat-panel HDTV installation service. The expansion would bring in an additional annual income of $50,000, but it also will require an additional expense of $20,000 each year over the next three years. Using applicable current tax rates, answer the following.
(a) What is the marginal tax rate in tax year 1?
(b) What is the average tax rate in tax year 1?
(c) Suppose that the new business expansion requires a capital investment of $20,000 worth of special tools (a three-year MACRS property). At i = 10%, what is the PW of the total income taxes to be paid over the project life?