A company expects to generate a $300,000 taxable income from its regular business operation in 2010. The
company purchased an industrial fork-lift for $75,000 at the beginning of year 2010. The company expects to
use it for the next 7 years after which it plans to sell it for $10,000. The estimated additional income and
expenses (excluding depreciation) with this purchase of lift-truck for the first year are given below. The fork-lift
will be depreciated according to a 5-year MACRS. (a) Determine the average tax rate applicable in the first year of operation, using the current corporate tax rate
schedule.
(b) Determine the incremental tax rate that should be applied to the additional taxable income generated from
the purchase of the lift-truck.

Question

A company expects to generate a $300,000 taxable income from its regular business operation in 2010. The
company purchased an industrial fork-lift for $75,000 at the beginning of year 2010. The company expects to
use it for the next 7 years after which it plans to sell it for $10,000. The estimated additional income and
expenses (excluding depreciation) with this purchase of lift-truck for the first year are given below. The fork-lift
will be depreciated according to a 5-year MACRS.  (a) Determine the average tax rate applicable in the first year of operation, using the current corporate tax rate
schedule.
(b) Determine the incremental tax rate that should be applied to the additional taxable income generated from
the purchase of the lift-truck.

Quizplus · Accepted Answer

The Answer of A company expects to generate a $300,000 taxable income from its regular business operation in 2010. The
company purchased an industrial fork-lift for $75,000 at the beginning of year 2010. The company expects to
use it for the next 7 years after which it plans to sell it for $10,000. The estimated additional income and
expenses (excluding depreciation) with this purchase of lift-truck for the first year are given below. The fork-lift
will be depreciated according to a 5-year MACRS.  (a) Determine the average tax rate applicable in the first year of operation, using the current corporate tax rate
schedule.
(b) Determine the incremental tax rate that should be applied to the additional taxable income generated from
the purchase of the lift-truck.

A Company Expects to Generate a $300,000 Taxable Income from Its