Solve each of the following parts independently: Requirement 1: Neal Company wou
ID: 2499215 • Letter: S
Question
Solve each of the following parts independently: Requirement 1: Neal Company would like to initiate a management development program for its executives. The program would cost $140,000 per year to operate. What would be the after-tax cost of the program if the company's income tax rate is 50%? (Omit the "$" sign in your response.) After-tax cost $ Requirement 2: Smerk's Department Store has rearranged the merchandise display cases on the first floor of its building, placing fast turnover items near the front door. This rearrangement has caused the company's contribution margin (and taxable income) to increase by $47,000 per month. If the company's income tax rate is 30%, what is the after-tax benefit from this rearrangement of facilities? (Omit the "$" sign in your response.) After-tax cash flow (benefit) $Requirements: Perfect Press. Inc., has just purchased a new binding machine at a cost of $245,000. For tax purposes, the entire original cost of the machine will be depreciated over seven years using the straight-line method. Determine the yearly tax savings from the depreciation tax shield. Assume that the income tax rate is 50%. (Omit the "$" sign in your response.) Yearly tax savings $Explanation / Answer
Answer for requirement 1:
Cost of the program=$140,000.
Tax rate =50%.
After tax cost =cost - tax savings on account of the cost
=$140,000 -50% of $140,000
=$70,000.
Answer is $70,000.
Answer for requirement 2:
Income from rearrangement =$47,000.
Tax rate =30%.
After tax benefit = increase in income - tax on increased income
after tax cash flow =$47,000 -$30% *$47,000
=$32,900.
Answer is $32,900.
Answer for requirement 3:
Cost of the binding machine =$245,000.
Life of the asset = 7 years.
Depreciation on strainght line basis =(Cost of the machine- salvage value)/Life of the asset
Depreciation =$245,000/7
=$35,000.
yearly tax savings on depreciation =$35,000 * applicable tax rate
=$35,000 *50$
=$17,500.
Answer is $17,500.
=
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