In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be? A. Cannot be determined from the information given. B. 17.6% C. 27% D. 19.8% E. 22.2%

In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be? A. Cannot be determined from the information given. B. 17.6% C. 27% D. 19.8% E. 22.2%

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter1: An Introducti On To Taxation And Understa Nding The Federal Tax Law

Section: Chapter Questions

Problem 46DQ

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?

A. Cannot be determined from the information given.

B. 17.6%

C. 27%

D. 19.8%

E. 22.2%

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