Company P must choose between two alternate transactions. The cash generated by Transaction 1 is taxable, and the cash generated by Transaction 2 is nontaxable.

Required:

1. Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal assuming that Transaction 1 generates $140,000 of income and Transaction 2 generates $93,800 of income.
2. Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal assuming that Transaction 1 generates $235,000 of income and Transaction 2 generates $195,050 of income.