Question

A Corporate taxes = (revenue – expenses) x corporate tax rate – tax credits. A firm’s tax rate is 30% and it can deduct any new investment from its expenses immediately. Its new investment is worth $100,000, which saves the company $X in taxes owed. What is X? Would the firm rather have a tax credit worth $40,000?

Answer 1

Answer:

$30,000 and yes

Explanation:

Data provided in the question

Tax rate = 30%

Worth of investment = $100,000

Tax credit worth = $40,000

Based on the above information, the value of X is

= Worth of investment × tax rate

= $100,000 × 30%

= $30,000

As the X value is $30,000 and the tax credit worth is $40,000 which is more than the tax save value so in this case the firm should rather have  a tax credit worth $40,000 as it contains high amount than taxed value i.e $30,000