Lardo Inc. plans to build a new manufacturing plant in either Country X or Count

Question

Lardo Inc. plans to build a new manufacturing plant in either Country X or Country Y. It projects gross revenue in either location of $4 million per year. Operating expenses would be $1.5 million in Country X and $1.8 million in Country 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? Complete this question by entering your answers in the tabs below Required A Required B your answer in dollars not in millions. Deductions should be indicated by Calculate the after-tax profit for each country. (Enter a minus sign. Round your intermediate calculations and final answers to the nearest whole dollar amount.) Country X Gross revenue Operating expenses Pre-tax profit Tax After-tax profit Prev !3 of 24 ::: Next >

Explanation / Answer

Solution a:

Solution b:

As after tax profit in country X is higher than country Y, therefore Lardo should built its new plant in country X.

Computation of after tax profit in each country Particulars Country X (In Million) Country Y (In Million) Gross Revenue $4.00 $4.00 Operating expenses $1.50 $1.80 Pre tax profit $2.50 $2.20 Tax
X - $2.50*20%
Y - $4*10% $0.50 $0.40 After Tax Profit $2.00 $1.80

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