Unlow Inc Must Choose Between Two Alternate Transactions

question 72

Multiple Choice

Unlow Inc. must choose between two alternate transactions. Transaction 1 would generate $160,000 cash, all of which would be taxable, while transaction 2 would generate $120,000 cash, none of which would be taxable. Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal.

• A) 15%
• B) 20%
• C) 25%
• D) 30%

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Definitions:

Adductor Magnus

A large muscle in the thigh that helps in the movement of drawing the legs together (adduction).

Vastus Lateralis

A muscle in the thigh that is part of the quadriceps group, involved in extending the knee and stabilizing the leg.

Lateral Condyle

A rounded projection at the end of a bone, most commonly referred to on the femur or humerus, providing attachment to muscles and ligaments.

Semimembranosus

A large muscle of the posterior thigh part of the hamstrings, involved in knee flexion and hip extension.