Understal Company has $750,000 to invest and two competing investment opportunities. Investment 1 would pay 9% per year ($67,500
annual before-tax cash flow). Investment 2 would pay 7% per year ($52,500 annual before-tax cash flow). The return on Investment 1 is taxable at Understal's 35% rate on ordinary income, while the return on Investment 2 is taxable at a 20% preferential rate.
a) Compute the explicit and implicit tax that Understal would pay with respect to each investment.
b) Which investment results in the greater after-tax cash flow?
a) Compute the explicit and implicit tax that Understal would pay with respect to each investment.
b) Which investment results in the greater after-tax cash flow?
1 answer:
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Answer:
$21.67
Explanation:
Exhibit 21-3 is attached with the answer .Please find it.
Total cost of production includes the fixed cost and variable cost. Fixed Cost remains constant as $500 in the exhibit, but the variable cost changes with each production level.
Cost of producing 60 units
Variable cost = $800
Fixed cost = $500
Total cost = $800+500 = $1,300
Product cost per unit = Total cost / numbers of unit = $1,300 / 60 = $21.67
