Answer:
Please see the answer below.
Explanation:
Given the information from the question. According to Kartik solution that is found on chegg for this problem. Please see the following solution
“a. Current annual corporate tax liability can be found using the corporate tax rate schedule:
Before tax income $ 200,000
Tax liability ($22,250 + $39,000) $61,250
b. Current average tax rate = $61,250 / $200,000 = 30.63%
c. If Hemingway finances its expansion using cash reserves, the new corporate tax liability and average tax rate is as under, using the corporate tax rate schedule:
Before tax income $ 350,000
Tax liability ($113,900 + $5,100) $ 119,000
Average tax rate = $119,000/$350,000 = 34%
d. If Hemingway finances its expansion using debt, the new corporate tax liability and average tax rate is as under, using the corporate tax rate schedule:
Before tax income $ 350,000
less: Interest expense ($ 70,000)
Taxable income $ 280,000
Tax liability ($22,250 + $70,200) $ 92,450
Average tax rate = $92,450/$280,000 = 33.02%
e. The after tax income from each possibility given below should be considered & the choice with the highest after tax income should be recommended:
Current after tax income = $200,000 - $61,250 = $138,750
Expansion with cash reserve, after tax income = $350,000 - $119,000 = $231,000
Expansion with debt, after tax income = $280,000 - $92,450 + $70,000 = $257,550
Hence, the third option with $257,550 after tax income is recommended”
Reference:
Kartik : https://www.chegg.com/homework-help/questions-and-answers/hemingway-corporation-considering-expanding-operations-boost-income-making-final-decision--q32169475)