Calculating Tax Cost

Microtech Software Corporation (MSC) was founded in 2001. The founder, Chan Li, studied at MIT and worked for a large software corporation before returning to his hometown, Centervale, to set up his own company.

The corporate tax rate structure applicable in Centervale is as follows:

  Taxable Income                                          Tax Rate

Up to $50,000                                               15 percent

From $50,001 through $150,000     22 percent

Income in excess of $150,000             30 percent

 

MSC has an opportunity to invest in a project that is expected to generate an additional $55,000 of taxable income.

Compute the tax cost of this additional income for the following three scenarios:

• MSC’s taxable income before the additional income is $45,000.
• MSC’s taxable income before the additional income is $300,000.
• MSC has a loss of $5,000 before considering the additional income.

Show all the steps of the calculation and the final answer for each scenario. Compare the results for the three scenarios and comment on any differences.

Write a one- to two-page paper in MS Word format. Apply APA standards for writing style to your work.

Use the following file naming convention: LastnameFirstInitial_M1_A3.doc.

By the due date assigned, deliver your assignment to the Submissions Area.

 

Assignment 3 Grading Criteria                              Maximum Points

Steps of the calculation demonstrated correct reasoning and quantities were accurately calculated.  40

Tax implications of the three scenarios were adequately analyzed and valid conclusions were drawn.  50

Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation.  10

Total:  100