As of June 30, 2012 (the computation date for the 2013 tax rate), Amanda Company
ID: 2631357 • Letter: A
Question
As of June 30, 2012 (the computation date for the 2013 tax rate), Amanda Company had a negative balance of $1,015 in its unemployment reserve account in State A.
The company's average payroll over the last three 12 month periods amounted to $525,000. The unemployment compensation law of State A provides that the tax rate of an employer who has a negative balance on the computation date shall be 7.2% during the following calendar year.
What is the smallest voluntary contribution that Amanda Co. should make in order to effect a change in its tax rate? That is, bring the Reserve Ratio to 0.0% or more, but less than 1.0% for a contribution rate of 6.7%.
What is the amount of tax savings as a result of the voluntary contribution if Amanda Co.'s taxable payroll for 2013 is $650,000?
I'm coming up with $1,015 for the first part, and a tax savings of $3,250 for the second part. Am I correct?
Explanation / Answer
The NPV of a project is the PV of the inflows minus the PV of the outflows. The equation for the NPV of this project at a 12 percent required return is:
The NPV of a project is the PV of the inflows minus the PV of the outflows. The equation for the NPV of this project at a 12 percent required return is:
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