Marginal-average and effective tax rates


Problem: Williams Inc reports total net income of $130,000 during 2012. This includes $10,000 of income from 5.5% Orange County municipal bonds. Thus the Corporation's taxable income is equal to $120,000.

a) What is William's tax liability for 2012?

b) What are William's marginal, average and effective tax rates, respectively?

c) If equivalent taxable bonds pay 7.5% interest, what is the implicit rate for the Orange County bonds?

d) Did Williams make a good choice to invest in the municipal bonds instead of the taxable bonds?

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Accounting Basics: Marginal-average and effective tax rates
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