Unlow Inc Must Choose Between Two Alternate Transactions

question 72

Multiple Choice

Unlow Inc. must choose between two alternate transactions. Transaction 1 would generate $160,000 cash, all of which would be taxable, while transaction 2 would generate $120,000 cash, none of which would be taxable. Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal.

• A) 15%
• B) 20%
• C) 25%
• D) 30%

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Definitions:

First-stage Allocation

The initial process of assigning overhead costs to different departments or cost centers in a business based on relevant criteria.

Plantwide Overhead Rate

A single overhead absorption rate used throughout a factory or plant for allocating overhead costs to products.

Activity-based Costing

An accounting method that identifies the activities that incur costs and then assigns indirect costs to products based on their use of those activities.

Designing

The process of planning and creating something with a specific function or intention in mind.