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Public Finance

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A corporation has $7 mil. in equity. During the tax year it takes in $4 million in receipts and earns $ 2 million in capital gains from sale of subsidiary. It incurs labor costs of $1 million, interest costs of $250,000, material costs of $500,000, and pays rent for structure of $250,000.

Calculate the corporation's total accounting profit and assuming that the profit is fully taxable, calculate its tax liability using the tax rates in this table:

Taxable income ATR at begin. of bracket MTR
less than 50,000 0% 15%
more than 50,000 but less than 75,00 15% 25%
more than 75,000 but less than 10 million 18% 34%
more than 10 mil. 34% 35%

Calculate the ATR (annual tax rate) of the corporation as a percentage of its economic profit, assuming that the opportunity cost of capital is 8%.

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