Question
16. Examples 11-2 and 11-3 in this chapter concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporations
16. Examples 11-2 and 11-3 in this chapter concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporations marginal tax rate. In Example 11-2, in which the marginal tax rate was 25 percent, the conclusion was to accept Alternative 1. In Example 11-3, in which the marginal tax rate was 15 percent, the conclusion was to accept Alternative 2. 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 conditions and assumptions stated in Examples 11-2 and 11-3.
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