Strategy C—Existing operations would generate pretax income of $30,000 for the balance of the year and construction would begin on a new research and development (R&D) center. The R&D center would...

Strategy C—Existing operations would generate pretax income of $30,000 for the balance of the year and construction would begin on a new research and development (R&D) center. The R&D center would become operational in the third quarter of 2015 and generate net licensing pretax income of $50,000 in 2015, along with income tax credits of $5,000.

Assume that the statutory tax rates in 2015 are 15% on the first $50,000 of income, 25% on the next $50,000 of income, and 30% on all remaining income. Calculate the estimated effective tax rate to be applied to income in the first six months of 2015, given each of the above strategies.

Note: Students should be reminded that if the tax benefit associated with prior-period operating losses is actually different from what was originally anticipated, such differences would be incorporated into the current-period effective tax rate.