Calculating Tax

Microtech Software Corporation (MSC) was founded in 2001. The founder, Chan Li, studied at MIT and worked for a large software corporation before returning to his hometown, Centervale, to set up his own company.

The corporate tax rate structure applicable in Centervale is as follows:

  Taxable Income
Tax Rate
  Up to $50,000 15 percent
  From $50,001 through $150,000 22 percent
  Income in excess of $150,000 30 percent

MSC has an opportunity to invest in a project that is expected to generate an additional $55,000 of taxable income.

Compute the tax cost of this additional income for the following three scenarios:

  • MSC’s taxable income before the additional income is $45,000.
  • MSC’s taxable income before the additional income is $300,000.
  • MSC has a loss of $5,000 before considering the additional income.
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