Corporate Tax Rate Schedule Range of taxable net income Range of taxable post 20
ID: 2613809 • Letter: C
Question
Corporate Tax Rate Schedule Range of taxable net income Range of taxable post 2018 Tax Cuts Federal and Arkansas State Combined Federal Marginal tax rate Base tax rateMarginal rate x amount over base Arkansas net corporate income to 3,000 3000 to 6,000 >6000 to 11,000 11000 to 25,000 25000 to 100,000 21% 21% 21% 21% 21% 21% 30 90 240 940 5.440 + (1% x amount over $0) + (2%x amount over $3,000) + (3% x amount over $6,000) + (5% x amount over $11,000) + (6% x amount over $25,000) + (6.5% x amount over$100,000 100,000 a. What is the: (i) Federal marginal tax rate; (ii) Arkansas state marginal tax rate; and (iii) combined Federal and Arkansas state marginal tax rate for an Arkansas corporation that will earn $40,000 in 2018 b. What will the company's after-tax earnings be after accounting for combined Federal and Arkansas state corporate taxes? c. What will the effective tax rate be after accounting for combined Federal and Arkansas state corporate taxes? d. XYZ Corporation has cumulative preferred stock but stopped paying preferred dividends more two years ago. If the company has surplus cash flows this year, and the Board wants to pay preferred and common stock dividends beginning this year without making up for missed dividends from prior years, can it do so? e. XYZ Corporation goes through an initial public offering (IPO) and the stock will be traded on NASDAQ. Is NASDAQ an exchange or OTC market? Will XYZ Corporation IPO shares initially trade in the primary or secondary market?Explanation / Answer
a) For an earning of $40,000, the marginal federal tax rate is 21%.Arkansas state marginal tax rate is 6%. Combined marginal tax rate is 27%
b) Pre tax earnings = 40000
Federal tax = 21% * 40000 = 8400
State tax = 940 + 6%*19000 = 2080
Total tax = 10480
After tax earnings = 40000 - 10480 = 29520
c) Effective tax rate = 10480/40000 = 26.20%
d) No this is not possible. All previous dividends to preferred stock holders have to be paid before common stock dividends can be paid.
e) NASDAQ is an exchange. Initially it will trade on the primary market.