Question

Hemingway Corporation is considering expanding its operations to boost its​ income, but before making a final​ decision, it has asked you to calculate the corporate tax consequences of such a decision.​ Currently, Hemingway generates​ before-tax yearly income of ​$197 comma 000 and has no debt outstanding. Expanding operations would allow Hemingway to increase​ before-tax yearly income to ​$339 comma 000. Hemingway can use either cash reserves or debt to finance its expansion. If Hemingway uses​ debt, it will have a yearly interest expense of ​$69 comma 000. Create a spreadsheet to conduct a tax analysis​ (assume a 23​% flat tax​ rate) for Hemingway Corporation and determine the​ following: a. What is​ Hemingway's current annual corporate tax​ liability

Answer 1

Answer: $45,310

Explanation:

Given that,

Before-tax yearly income = ​$197,000

Hemingway to increase​ before-tax yearly income to ​$339,000

Yearly interest expense = ​$69,000

flat tax​ rate = 23%

Current annual corporate tax liability = ​$197,000 × 23%

                                                              = ​$197,000 × 0.23

                                                              = $45,310