Suppose the tax rate is 30% if taxable income is positive and 0% if taxable income is negative. Consider the before-tax payoffs to the following three projects: a. Riskless: 10% for sure b. Moderately...

Suppose the tax rate is 30% if taxable income is positive and 0% if taxable income is negative. Consider the before-tax payoffs to the following three projects:

a. Riskless: 10% for sure

b. Moderately risky: 30% half the time −10% half the time

c. Quite risky: 300% one time in 10 −20% nine times out of 10 Required:

1. Calculate the before-tax and after-tax expected rates of return for each project.

2. How does the variability of returns affect the expected tax rate? Why?

3. Does this tax structure encourage or discourage high technology start-up ventures?