Buffy Company pays taxes of 15% on their first $20,000 of pre- tax income, and 30% on any taxable income in excess of $20,000. The average tax rate, if current pre- tax income is $50,000, is:

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Buffy Company pays $3,000 (15% of $20,000) on the first $20,000 and $9,000 (30% of $30,000) on the remaining $30,000. Total tax is $12,000. The average tax rate is $12,000 / $50,000 = 24%.

Buffy Company Pays Taxes of 15% on Their First $20,000