3. You may use the following simplified corporate tax bracket to answer the following question:
You’re the Chief Operating Officer for Space X, and your current taxable corporate income is $24,000.
You can undertake a project that will increase your taxable corporate income by $1,500. The project
costs $500. Explain your answers to the following questions thoroughly and be sure to address how the
$0 – $5,000 10% of the amount over $0
$5,000 – $20,000 $500 + 20% of the amount over $5,000
$20,000 – $25,000 $3,500 + 40% of the amount over $20,000
$25,000 and over 30% of the amount over $0
given tax code affects your choices.
a. Do you undertake this project if you are able to finance the project without raising funds?
b. Now suppose that you need to raise the $500 through either debt or equity financing, and the
interest rate is 10%. Interest paid on loans is deductible, and you can claim a credit for dividend
payments. Do you undertake the project? How do you finance it? Why?