Lansing Corporation,a publicly held company with a 35% marginal tax rate,paid its CEO an annual salary of $1 million plus a bonus of $1.3 million.The bonus was based on a targeted amount of annual gross revenue.Ignoring payroll taxes,calculate the after-tax cost of this payment.

Question

Quizplus · Accepted Answer

The total payment made to the CEO is $1 million + $1.3 million = $2.3 million. However, Lansing Corporation is subject to a 35% marginal tax rate, so the after-tax cost of this payment is 65% of $2.3 million.
After-tax cost = 0.65 × $2.3 million = $1.495 million.
Therefore, the correct answer is B.

Lansing Corporation,a Publicly Held Company with a 35% Marginal Tax