Examples 12–2 and 12–3 in the text concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporation’s marginal tax rate. In Example 12-2, where the marginal tax rate was 40 percent, the conclusion was to accept Alternative A. In Example 12-3, where the marginal tax rate was 20 percent, the conclusion was to accept Alternative M.
Determine the marginal tax rate at which the two alternatives would be economic equivalents, that is, they would “break even” and generate the same excess after-tax payoff over after-tax cost. Your answer should be based on all of the conditions and assumptions as stated in Examples 12–2 and 12–3.