Hyundai is considering opening a plant in two neighboring states. Option 1: One
ID: 2333249 • Letter: H
Question
Hyundai is considering opening a plant in two neighboring states.
Option 1: One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,420,000 pretax profit.
Option 2: The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $1,380,000 of pretax profit.
a. What is the after state taxes profit in the state with the 10% tax rate?
b. What is the after state taxes profit in the state with the 2% tax rate?
c. Which state should Hyundai choose?
Option 1
Option 2
Explanation / Answer
Answer:- Hyundai should choose to operate the plant in the state with the 2 percent tax rate.
Explanation:
Hyundai should choose to operate the plant in the state with the 2 percent tax rate.
Operating the plant in this state would generate $1352400 of profits after state taxes (i.e., $1380000 (2 percent *$1380000) = $1352400) versus $1278000 of profits after state taxes (i.e., $1420000 (10 percent * $1420000) = $1278000) in the state with the 10 percent tax rate.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.