Hyundai is considering opening a plant in two neighboring states. Option 1: One
ID: 2521464 • Letter: H
Question
Hyundai is considering opening a plant in two neighboring states.
Option 1: One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,200,000 pretax profit.
Option 2: The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $1,140,000 of pretax profit.
a. What is the after state taxes profit in the state with the 10% tax rate?
b. What is the after state taxes profit in the state with the 2% tax rate?
c. Which state should Hyundai choose?
Option 1 Option 2
Explanation / Answer
Answer
Working
Option 1
Option 2
A
Pre-tax Profits
$1,200,000
$1,140,000
B
Tax rate
10%
2%
C=A x B
Income taxes based on above rates
$120,000
$22,800
D = A - C
After state taxes profits
$1,080,000 [Answer (a)]
$1,117,200 [Answer (b)]
Working
Option 1
Option 2
A
Pre-tax Profits
$1,200,000
$1,140,000
B
Tax rate
10%
2%
C=A x B
Income taxes based on above rates
$120,000
$22,800
D = A - C
After state taxes profits
$1,080,000 [Answer (a)]
$1,117,200 [Answer (b)]
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