Rarke Company Must Choose Between Two Alternate Transactions

question 61

Multiple Choice

Rarke Company must choose between two alternate transactions. Transaction 1 requires a $20,000 nondeductible cash outlay, while transaction 2 requires a $25,000 deductible cash outlay. Determine the marginal tax rate at which the after-tax costs of the two transactions are equal.

• A) 15%
• B) 20%
• C) 25%
• D) 30%

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