Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have after-tax cash receipts of $54,000 if they accept the order. If Putnam has a tax rate of 40%, what is the price the customer should be charged for their order?
A) $32,400
B) $21,600
C) $90,000
D) $54,000

Question

Quizplus · Accepted Answer

To achieve after-tax cash receipts of $54,000, the pre-tax amount must be higher because the tax will reduce the amount received. The calculation is $54,000 / (1 - 0.40) = $90,000. This is because the after-tax amount represents 60% (100% - 40%) of the pre-tax amount, so dividing by 0.60 gives the required pre-tax amount.

Putnam Distributors Is Contemplating Whether or Not to Accept a Special