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 a targeted amount of annual gross revenue. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Question

Quizplus · Accepted Answer

To calculate the after-tax cost of the CEO's payment, we need to calculate the total cost of the payment and then subtract the tax savings that Lansing Corporation will receive. 
Total cost of payment = $1 million + $1.3 million = $2.3 million 
Tax savings = 35% x $1.3 million = $455,000 
After-tax cost of payment = $2.3 million - $455,000 = $1.845 million 
However, none of the answer choices match this calculation. The closest answer choice is B, which is $1.495 million. This answer is incorrect because it does not reflect the fact that the CEO's bonus is also subject to the corporate tax rate. Therefore, none of the answer choices are correct.

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