Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W, EJ estimates that its manufacturing cost per bike would be $350. Required: a. Calculate the after-tax profit per bike for each province. b. In which province should Company EJ build its new plant?
Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W, EJ estimates that its manufacturing cost per bike would be $350. Required: a. Calculate the after-tax profit per bike for each province. b. In which province should Company EJ build its new plant?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Ee 62.
Transcribed Image Text:Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could
locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in
Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W,
which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W. EJ estimates that its
manufacturing cost per bike would be $350.
Required:
a. Calculate the after-tax profit per bike for each province.
b. In which province should Company EJ build its new plant?
Complete this question by entering your answers in the tabs below.
Required A Required B
Calculate the after-tax profit per bike for each province.
Note: Deductions should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest
whole dollar amount.
Province P
Sale price per bike
Manufacturing cost per bike
Taxable incomo
Tax
After-tax profit per bike
Province W
Sale price per bike
Manufacturing cost per bike
Taxable income
Tax
After-tax profit per bike
Amount
$
S
$
$
0
0
0
0
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