A company with an income tax rate of 40% and an objective of an after-tax target operating profit of $48,000 should generate a before-tax target operating profit of $120,000.

Question

Quizplus · Accepted Answer

To determine the before-tax target operating profit needed to achieve an after-tax target operating profit of $48,000 with a 40% income tax rate, the following calculation can be used:

Before-tax profit = After-tax profit / (1 - Tax rate)
Before-tax profit = $48,000 / (1 - 0.40)
Before-tax profit = $80,000

Therefore, the correct answer is B, the before-tax target operating profit should be $80,000 in order to achieve an after-tax target operating profit of $48,000 with a 40% income tax rate.

A Company with an Income Tax Rate of 40% and an Objective