Question

Tax: Mount Hebron Electrical Company’s financial statements indicated that the company had earnings before interest and taxes of $718,323. The interest rate on its $850,000 debt was 8.95 percent. Calculate the taxes the company is likely to owe. What are the marginal and average tax rates for this company?

Answer 1

EBIT = $718,323

Interest = $76,075

EBT = $718,323 - $76,075 = $642,248

Tax rate	Income	Tax
15%	$0 to $50,000	$7,500
25%	50,001 - 75,000	6,250
34%	75,001 - 100,000	8,500
39%	100,001 - 335,000	91,650
34%	335,001 - 10,000,000	104,464.32
35%	10,000,001 - 15,000,000
38%	15,000,001 - 18,333,333
35%	More than $18,333,333
	Total taxes payable	$218,364.32

Marginal tax rate = 34%
Average tax rate = Total taxes/ Taxable Income = $218,364.32/ $642,248 = 34%