The after-tax cost of the payment made by Westover corporation is $1.29 million. Hence, Option B is correct.
The term "after-tax cost" refers to the real expenses less a sum equal to the total federal and state income tax savings resulting from the ability to deduct the expenditures for both federal and state tax purposes in the year they are incurred.
The weighted average cost of capital (WACC) measures the average after-tax cost of capital for a company from all sources, including common stock, preferred stock, bonds, and other types of debt.
Westover Corporation, a publicly traded business with a 21% tax rate, awarded their PEO a yearly salary of $1 million plus a $500k year-end incentive. The bonus was determined by a specified amount of yearly gross income. avoiding payroll taxes.
Required calculations are:
($1.5 million - $210,000 tax savings[$1 million × 21%)])
As a result of this calculation, the after-tax cost is $1.290 million. Option B is correct.
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