Answer:
A. 25%
B. 50%
C. 40%
Explanation:
A. Calculation to determine the marginal tax rate assuming that Expenditure 1 is fully deductible and Expenditure 2 is non deductible
Lets marginal tax rate be X%
Marginal tax rate =$80,000 - [$80,000*X%] = 60,000$
Marginal tax rate =$80,000*X% = $80,000-$60,000
Marginal tax rate =$80,000*X% =$20,000
Marginal tax rate =X= $20,000/$80,000
Marginal tax rate =X= 25%
Therefore the marginal tax rate assuming that Expenditure 1 is fully deductible and Expenditure 2 is non deductible will be 25%
b. Calculation to Determine the marginal tax rate
assuming that Expenditure 1 is 50 percent deductible and Expenditure 2 is nondeductible.
Marginal tax rate=$80,000 - [$80,000*50%*X%] =$ 60,000
Marginal tax rate=$40,000*X%=$20,000
Marginal tax rate=X%=50%
Therefore the marginal tax rate
assuming that Expenditure 1 is 50 percent deductible and Expenditure 2 is nondeductible will be 50%
c.Calculation to determine the marginal tax assuming that Expenditure 1 is fully deductible and Expenditure 2 is 50 percent deductible.
Marginal tax rate=$80,000- [$80,000*X] = $60,000 - [$60,000*50%*X]
Marginal tax rate=$80,000-$60,000 = [$80,000*x] - [$30,000*x]
Marginal tax rate=$20,000 =$50,000X
Marginal tax rate=X=$20,000/$50,000
Marginal tax rate=X=40%
Therefore the marginal tax assuming that Expenditure 1 is fully deductible and Expenditure 2 is 50 percent deductible will be 40%
