Reference no: EM132913521
Company G, which has a 30 percent marginal tax rate, owns a controlling interest in Company J, which has a 12 percent marginal tax rate. Both companies perform engineering services. Company G is negotiating a contract to provide services for a client. Upon satisfactory completion of the services, the client will pay $103,000 cash.
Required:
-Compute the after-tax cash from the contract assuming that Company G is the party to the contract and provides the services to the client.
-Compute the after-tax cash from the contract assuming that Company J is the party to the contract and provides the services to the client.
-Compute the after-tax cash flow for Company G from the contract assuming that Company J is the party to the contract, but Company G actually provides the services to the client.The following information is for X Company's two products, A and B:
Product AProduct BRevenue$93,000$90,000Total contribution margin$39,990$37,800Total fixed costs$24,920$57,550Profit$15,070$-19,750
$4,486 of Product A's fixed costs are avoidable; $9,784 of Product B's fixed costs are avoidable. X Company is considering dropping Product B.
If it does, it can use the freed-up resources to increase sales of Product A by $34,500, but $2,400 of additional fixed costs will be incurred. If X Company drops Product B and increases Product A sales, firm profits will fall by Mr. G has $15,000 to invest. He is undecided about putting the money into tax-exempt municipal bonds paying 3.5 percent annual interest or corporate bonds paying 4.75 percent annual interest. The two investments have the same risk.
Which investment should Mr. G make if his marginal tax rate is 32 percent?
Would your conclusion change if Mr. G's marginal tax rate is only 12 percent?
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