Question

White Mountain Industrial is evaluating the laser tag center project. During year 1, the laser tag center project is expected to have relevant revenue of 729,800 dollars, relevant variable costs of 248,200 dollars, and relevant depreciation of 86,800 dollars. In addition, White Mountain Industrial would have one source of fixed costs associated with the laser tag center project. White Mountain Industrial just signed a deal with Green Forest Marketing to develop an advertising campaign for use in the project. The terms of the deal require White Mountain Industrial to pay Green Forest Marketing either 61,700 dollars in 1 year if the project is pursued or 88,000 dollars in 1 year if the project is not pursued. Relevant net income for the laser tag center project in year 1 is expected to be 148,775 dollars. What is the tax rate expected to be in year 1?  Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer 1

Calaculation of tax rate expected to be in year 1:

Given

Relevant net income for the laser tag centre project for year 1 is expected to be $148775

Inome has been expecting from laser tag centre project implies that white mountain industrials pursued the project.

It was given that if project is pursued, white mountain industrial have to pay $61700 to Green forest marketing for year 1, which is a relevant fixed cost for white mountain industrial.

And also given

Relevant revenue = $729800

Relevant variable costs = $248200

Relevant depreciation = $86800

That implies,

Earnings before tax

= Revenue - varaible expenses - fixed cost - depreciation

= $729800 - $248200 - $61700 - $86800

= $333100

Now,

We have both net income after tax $148775 and Earnings before taxes $333100

That implies,

Tax rate

= Net income/Earnings before tax

= $148775/$333100

= 0.4466

Therefore

The tax rate expected to be in year 1 is 0.4466

_____×_____

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