Determine the required before-tax rate of return if an after-tax return of 9% per year is expected and the state and local tax rates total 6%. The effective federal tax rate is 35%.

What will be an ideal response?


Effective tax rate = 0.06 + (1 – 0.06)(0.35) = 0.38

Before-tax ROR = 0.09/(1 - 0.389) = 0.147

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