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EAR and Effective Tax Rate

EAR versus APR

Big Dom's Pawn Shop charges an interest rate of 16 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. (Do not include the percent sign (%). Round your answers to 2 decimal places, e.g. 32.16.)

What rate should the shop report? percent

What is the effective annual rate? percent
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Tax Rates

The Baryla Co. had $220,000 in 2007 taxable income. Use the rates from the table below to calculate the following (Do not include the percent sign (%). Round your answers to 2 decimal places, e.g. 32.16):

Average tax rate: percent;

Marginal tax rate: percent.

Taxable income tax rate
0-50,000 15%
50,001-75,000 25%
75,001-100,000 34%
100,001-335,000 39%
335,001-10,000,000 34%
10,000,001-15,000,000 35%
15,000,001 - 18,333,333 38%
18,333,334 + 35%
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Calculating Taxes

The Baryla Co. had $360,000 in 2007 taxable income. Using the rates from the table below, the company's 2007 income taxes are $

Taxable income Tax Rate
$0 - 50,000 15%
50,001 - 75,000 25%
75,001 - 100,000 34%
100,001 - 335,000 39%
335,001 - 10,000,000 34%
10,000,001 - 15,000,000 35%
15,000,001 - 18,333,333 38%
18,333,334 + 35%

Solution Preview

EAR versus APR

Big Dom's Pawn Shop charges an interest rate of 16 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. (Do not include the percent sign (%). Round your answers to 2 decimal places, e.g. 32.16.)

What rate should the shop report? percent

APR is calculated as monthly rate X 12 = 16%X12 = 192%

What is the effective annual rate? percent

EAR is calculated as (1+monthly rate)^12-1
EAR = (1+16%)^12-1 = 493.60%
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Tax ...

Solution Summary

The solution explains how to calculate the effective annual rate and the effective and marginal tax rate

$2.19