A & K Co. expects to have earnings before taxes of $250,000 to $300,000. The company's marginal tax rate is 39% and its average tax rate about 33%. For every additional dollar of interest expense, A & K's taxes will
A) increase by 39 cents.
B) fall by 39 cents.
C) be unaffected.
D) fall by about 33 cents.

Question

Quizplus · Accepted Answer

Interest expense is deductible, so for every additional dollar of interest expense, A & K's taxes will fall by the marginal tax rate of 39 cents.

A & K Co Expects to Have Earnings Before Taxes of $250,000 to of $250,000