Use the information for the question(s)below.
Consider the following tax rates:
-The effective tax disadvantage for retaining cash in 2000 was closest to:
A)15.00%.
B)13.33%.
C)14.75%.
D)35.00%.

Question

Use the information for the question(s)below.
Consider the following tax rates: 
-The effective tax disadvantage for retaining cash in 2000 was closest to:
A)15.00%. 
B)13.33%. 
C)14.75%. 
D)35.00%.

Quizplus · Accepted Answer

The effective tax disadvantage for retaining cash can be calculated using the following formula: 
Effective tax disadvantage = (1 - (1 + top marginal rate)*(1 + second marginal rate)*(1 + third marginal rate)*(1 + fourth marginal rate)*(1 + state rate)) 
Plugging in the given tax rates, we get:
Effective tax disadvantage = (1 - (1 + 0.396)*(1 + 0.36)*(1 + 0.28)*(1 + 0.20)*(1 + 0.053)) = 0.1333 or 13.33%
Therefore, the closest answer choice is B.

Use the Information for the Question(s)below