Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001

Net Fixed Assets and Depreciation On the balance sheet, the net fixed assets (NFA) account is equal to the gross fixed assets (FA) account, which records the acquisition cost of fixed assets, minus the accumulated depreciation (AD) account, which records the total depreciation taken by the firm against its fixed assets. Using the fact that NFA = FA − AD, show that the expression given in the chapter for net capital spending, NFAend− NFAbeg+ D (where D is the depreciation expense during the year), is equivalent to FAend− FAbeg.
26. Tax Rates Refer to the corporate marginal tax rate information in Table 2.3.
1. 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?
2. 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?
3. 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?
Excel Master It! Problem
Using Excel to find the marginal tax rate can be accomplished using the VLOOKUP function. However, calculating the total tax bill is a little more difficult. Below we have shown a copy of the IRS tax table for an individual for 2015 (the income thresholds are indexed to inflation and change through time).
If taxable income is over --But not over --The tax is:
$ 0 $ 9,22510% of the amount over $0
9,226 37,450$922.50 plus 15% of the amount over $9,225
37,451 90,750$5,126.25 plus 25% of the amount over $37,450
90,751 189,300$18,481.25 plus 28% of the amount over $90,750
189,301 411,500$46,075.25 plus 33% of the amount over $189,300
411,501 413,200$119,402.25 plus 35% of the amount over $411,500
413,201 $119,996.25 plus 39.6% of the amount over $413,200
In reading this table, the marginal tax rate for taxable income less than $9,225 is 10 percent. If the taxable income is between $9,226 and $37,450, the tax bill is $922.50 plus the marginal taxes. The marginal taxes are calculated as the taxable income minus $9,225 times the marginal tax rate of 15 percent.
1. Create a tax table for corporate taxes similar to the individual tax table shown above.
2. For a given taxable income, what is the marginal tax rate?
3. For a given taxable income, what is the total tax bill?
4. For a given taxable income, what is the average tax rate?
Mini Case
CASH FLOWS AT WARF COMPUTERS, INC.
Warf Computers, Inc., was founded 15 years ago by Nick Warf, a computer programmer. The small initial investment to start the company was made by Nick and his friends. Over the years, this same group has supplied the limited additional investment needed by the company in the form of both equity and short- and long-term debt. Recently the company has developed a virtual keyboard (VK). The VK uses sophisticated artificial intelligence algorithms that allow the user to speak naturally and have the computer input the text, correct spelling and grammatical errors, and format the document according to preset user guidelines. The VK even suggests alternative phrasing and sentence structure, and it provides detailed stylistic diagnostics. Based on a proprietary, very advanced software/hardware hybrid technology, the system is a full generation beyond what is currently on the market. To introduce the VK, the company will require significant outside investment.
Nick has made the decision to seek this outside financing in the form of new equity investments and bank loans.
Naturally, new investors and the banks will require a detailed financial analysis. Your employer, Angus Jones & Partners, LLC, has asked you to examine the financial statements provided by Nick. Here are the balance sheets for the two most recent years and the most recent income statement:
Nick has also provided the following information: During the year the company raised $228,000 in new long-term debt and retired $197,000 in long-term debt. The company also sold $15,000 in new stock and repurchased $66,000 in stock. The company purchased $1,482,000 in fixed assets and sold $429,000 in fixed assets.
Angus has asked you to prepare the financial statement of cash flows and the accounting statement of cash flows. He has also asked you to answer the following questions:
1. How would you describe Warf Computers’ cash flows?
2. Which cash flow statement more accurately describes the cash flows at the company?
3. In light of your previous answers, comment on Nick’s expansion plans

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