The legislature is considering changing tax rates from $7$ percent to either $6$ percent or $5$ percent. Pathways LandscapingThe legislature is considering changing tax rates from $7$ percent to either $6$ percent or $5$ percent. Pathways Landscaping

Equipment is trying to understand the impact of these changes and is using scenario analysis to assess the expected

value of the impact. Before any changes are made, the base case scenario is $$1,000,000$ in annual taxable income at a tax

rate of $7$ percent.

The following table summarizes the expected financial impact of each scenario, assuming that taxable income increases

or decreases by $5$ percent and either no changes are made in the $7$ percent tax rate or the tax rate decreases to either $6$

percent or $5$ percent.

Based on Pathways' assessment of the probability of the tax$-$law changes and potential changes in its own taxable

income, here are the joint probabilities of the changes in tax rate and taxable income.

PR $13-2($LO $13\mathrm{.}4)$ Now assume that the tax rates are expected...

Now assume that the tax rates are expected to change to $8$ percent, $7$ percent, and $6$ percent with the same probabilities as Problem $1.$

Required:

Compute the value of the expected impact of the changes in tax rates on Pathways' tax burden.

Note: The goal is to identify the value of the increase or decrease to taxes owed. Decreases to taxes owed should be entered as a

negative value.

Equipment is trying to understand the impact of these changes and is using scenario analysis to assess the expected

value of the impact. Before any changes are made, the base case scenario is $$1,000,000$ in annual taxable income at a tax

rate of $7$ percent.

The following table summarizes the expected financial impact of each scenario, assuming that taxable income increases

or decreases by $5$ percent and either no changes are made in the $7$ percent tax rate or the tax rate decreases to either $6$

percent or $5$ percent.

Based on Pathways' assessment of the probability of the tax$-$law changes and potential changes in its own taxable

income, here are the joint probabilities of the changes in tax rate and taxable income.

PR $13-2($LO $13\mathrm{.}4)$ Now assume that the tax rates are expected...

Now assume that the tax rates are expected to change to $8$ percent, $7$ percent, and $6$ percent with the same probabilities as Problem $1.$

Required:

Compute the value of the expected impact of the changes in tax rates on Pathways' tax burden.

Note: The goal is to identify the value of the increase or decrease to taxes owed. Decreases to taxes owed should be entered as a

negative value.