11 June, 20:40

# Hemingway Corporation is considering expanding its operations to boost its income, but before making a final decision, it has asked you to calculate the corporate tax consequences of such a decision. Currently, Hemingway generates before-tax yearly income of \$197 comma 000 and has no debt outstanding. Expanding operations would allow Hemingway to increase before-tax yearly income to \$339 comma 000. Hemingway can use either cash reserves or debt to finance its expansion. If Hemingway uses debt, it will have a yearly interest expense of \$69 comma 000. Create a spreadsheet to conduct a tax analysis (assume a 23 % flat tax rate) for Hemingway Corporation and determine the following: a. What is Hemingway's current annual corporate tax liability

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1. 11 June, 22:29
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Explanation:

Given that,

Before-tax yearly income = \$197,000

Hemingway to increase before-tax yearly income to \$339,000

Yearly interest expense = \$69,000

flat tax rate = 23%

Current annual corporate tax liability = \$197,000 * 23%

= \$197,000 * 0.23

= \$45,310