Knorr & Associates paid total taxes of $72,000 in the first year of their consulting business. (a) What was the company’s taxable income? (b) What was the average tax rate? (c) What was the estimated NOPAT for the year?
What will be an ideal response?
(a) From Table 17.1, TI is in the range of $100,000 to $335,000
72,000 = 22,250 + 0.39(TI – 100,000)
0.39TI = 88,750
TI = $227,564
(b) Average tax rate = T = 72,000/227,564 = 0.316 (31.6%)
(c) NOPAT = TI(1 – T)
= 227,564(1 – 0.316)
= $155,654
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