QUESTION 4 11 Hemingway finances its expansion using debt, what will be its new corporate tax liability and average tax rate ? O Tax liability $22,450 Average tax rate: 6.41% O Tax liability $92,450 Average tax rate: 33.02% 0 Tax liability $113,900 Average tax rate: 34% O Tax liability $162,450 Average tax rate: 39% Description Hemingway Corporation is considering expanding its operations to boost its income, but before making a final decision, it has asked you to calculate the corporate tax consequences of its decision. Currently, Herningway generates before-tax yearly income of $200,000 and has no debt outstanding Expanding operations would allow Hemingway to increase before tax yearly income to $350,000. Hemingway can use either cash reserves or debt to finance its expansion. If Hemingway uses debt, it will have yearly interest expense of $70,000. The firm is subject to the following tax schedule: Tax calculation + (Marginal rate * amount over base bracket) Range of taxable income Base tax 0 amount over s + amount over (15% (25 (34 (39 7.500 13,750 22.250 113.900 X X X X amount over 0 to $ 50.000 5 50,000 to 75,000 75,000 to 100,000 100,000 to 335.000 335,000 10,000,000 10,000,000 to 15,000,000 15,000,000 to 18.333,333 Ore 18,333,333 amount over 0) 50,000) 75,000) 100,000) 335,000) 10,000,000) 15,000,000) 18,333,333) amount over + (34 135 (38 3,400,000 5.150,000 amount over + amount over 6.416,667 (35 amount over