Hicks Health Clubs, Inc., expects to generate an annual EBIT of $750,000 and needs to obtain financing for $1,200,000 of assets. Their tax bracket is 40%. If the firm goes with a short-term financing plan, their rate will be 7.
Mike, an attorney, earns $200,000 from his law practice and receives $45,000 in dividends and interest during the year. In addition, he incurs a loss of $50,000 from an investment in a passive activity acquired three years ago.