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Kitty [74]
3 years ago
7

Lardo Inc. plans to build a new manufacturing plant in either Country X or Country Y. It projects gross revenue in either locati

on of $4 million per year. Operating expenses would be $1.5 million in Country X and $1.8 million in Country Y. Country X levies income tax at a rate of 20 percent on net business income. Country Y does not have an income tax, but assesses a 10 percent tax on gross revenue, without allowance for any deductions. a. Calculate the after-tax profit for each country. b. In which country should Lardo build its new plant?
Business
1 answer:
Tom [10]3 years ago
3 0

Answer:

Following are the solution to the given points:

Explanation:

For point a:

After-tax profit for each country.

For Country X:

Particulars \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Amount(\$)\\\\Gross \ \ Revenue\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4,000,000\\\\ Operating\ \ Expenses \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \  1,500,000\\\\ Pre-tax \ \ Profit \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2,500,000 \\\\  

Tax \ [ 2,500,000 \times 20\% \ ] \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ 500,000\\\\ After-tax\ \ profit\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2,000,000

For Country Y:

Particulars \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Amount(\$)\\\\Gross \ \ Revenue\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4,000,000 \\\\Operating\ \ Expenses \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  1,800,000\\\\

Pre-tax\ \ Profit \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  2,200,000\\\\Tax\  [40,00,000 \times 10\%] \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  400,000 \\\\After-tax\ \ profit \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \  1,800,000

For point b:

For Country X:

Lardo is expected to establish its new plant in Country X, because Country X's after tax income is higher than Country y's after-tax income [$1,800,000].

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