Question

2. Firm A has a 15 percent marginal tax rate and Firm Z has a 35 percent marginal tax rate. Firm A owns a controlling interest in Firm Z. The owners of Firm A decide to incur a $40,000 deductible expense that will benefit both firms. Compute the after-tax cost of the expense assuming that: a) Firm A incurs the expense.

Answer 1

Answer: $34000

Step-by-step explanation:

From the question, we are informed that Firm A has a 15 percent marginal tax rate. Based on the information given, the after tax cost that Firm A will incur will be:

= $40000 - ($40000 × 15%)

= $40000 - ($40000 × 0.15)

= $40000 - $6000

= $34000