Tax rates refer to the corporate marginal tax rate information in Table 2.3.

a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back to a 34 percent marginal rate at a taxable income of $335,001?

b. Compute the average tax rate for a corporation with exactly $335,001 in taxable income. Does this confirm your explanation in part (a)? What is the average tax rate for a corporation with exactly $18,333,334? Is the same thing happening here?

c. The 39 percent and 38 percent tax rates both represent what is called a tax ??bubble.?? Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $200,000. What would the new 39 percent bubble rate have to be?

Use the following information for Taco Swell, Inc., for Problems 25 and 26 (assume the tax rate is 34percent).

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2008 2007 $4,822 | S5,390 Sales Depreciation 692 723 Cost of goods sold 1,658 1,961 Other expenses 394 343 323 386 Interest Cash 2,528 2,694 3,347 Accounts receivable 3,928 Short-tem notes payable 488 478 Long-term debt 10,290 8,467 Net fixed 21,203 22,614 Accounts payable 2,656 2,683 Inventory 5,951 6,370 Dividends 588 674