Your company is contemplating offering new product line. To recover the large in

Question

Your company is contemplating offering new product line. To recover the large initial investment needed, an annual $3.8 million cash flow after taxes is needed. A favored federal tax rate of 25% is expected; however, state taxing authorities will levy a 6% tax on taxable income. During the first year of operation, you expect your deductible expenses to total $850, 000 and you expect your depreciation to total $560, 000. a. Determine the effective tax rate. b. Determine the required gross income in your first year.

Explanation / Answer

a)

Effective tax rate:

= 25%+6%

= 31%

b)

Required gross income:

$3,800,000 = (Gross income-$850,000-$560,000)×(1-31%)

Required gross income = $6,917,246

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.