Lansing Corporation, a publicly held company with a 21% tax rate, paid its PEO an annual salary of $2.3 million. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Question

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The after-tax cost is calculated by subtracting the tax savings from the salary. Tax savings = $2.3 million * 21% = $0.483 million. After-tax cost = $2.3 million - $0.483 million = $1.817 million.

Lansing Corporation, a Publicly Held Company with a 21% Tax