Business
Business, 21.01.2020 06:31, olsen6932

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 its decision. currently, hemingway generates before-tax yearly income of $200,000 and has no debt outstanding. expanding operations would allow hemingway to increase before-tax yearly income to $350,000. hemingway can use either cash reserves or debt to finance its expansion. if hemingway uses debt, it will have yearly interest expense of $70,000

create a spreadsheet to conduct a tax analysis for hemingway corporation and determine the following:

a. what is hemingway’s current annual corporate tax liability?

b. what is hemingway’s current average tax rate?

c. if hemingway finances its expansion using cash reserves, what will be its new corporate tax liability and average tax rate?

d. if hemingway finances its expansion using debt, what will be its new corporate tax liability and average tax rate?

e. what would you recommend that the firm do? why? principles of managerial finance 15th ed zutter smart chapter 2

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Answers: 1

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