FIN 504 week one

fin504.r.gitmanch01.02_student.xlsx

CH1- Cost Benefit Formulas

Monsanto Corporation
Purchase of New Equipment
Cost-Benefit Analysis
Benefits with the new equipment	$ 900,000
Less: Benefits with the old equipment	300,000
Marginal (added) benefits of the New Equipment		$600,000
Cost of new equipment	$ 600,000
Less: Proceeds from the sale of the old equipment	250,000
Marginal (added) costs of the New Equipment		$ 350,000
Net benefit of the proposed purchase of new equipment		$250,000

						Current Income	Expansion Income	Expansion Income
						With No Expansion	Using Cash Reserves	Using Debt Financing
			Before tax income			$200,000	$350,000	$350,000
Corporate Tax Rate Schedule			Interest expense			$0	$0	$70,000
			Taxable income			$200,000	$350,000	$280,000
Range of taxable income				Marginal tax rate	x	Amount over base bracket	Amount over base bracket	Amount over base bracket
$0	to	$50,000		15%	x	$7,500	$7,500	$7,500
$50,000	to	$75,000		25%	x	$6,250	$6,250	$6,250
$75,000	to	$100,000		34%	x	$8,500	$8,500	$8,500
$100,000	to	$335,000		39%	x	$39,000	$91,650	$70,200
$335,000	to	$10,000,000		34%	x		$5,100
$10,000,000	to	$15,000,000		35%	x
$15,000,000	to	$18,333,333		38%	x
$18,333,333	over			35%	x
			Total corproate tax libility			$61,250	$119,000	$92,450
			Average corporate tax rate			30.63%	34.00%	33.02%