Question: Company EJ plans to build a new plant to manufacture
Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $400 per bike. It could locate the plant in Province P, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $212. Alternatively, EJ could locate the plant in Province W, which levies a 16 percent tax on business income. On the basis of the cost of materials and labor in Province W, EJ estimates that its manufacturing cost per bike would be $230. In which province should Company EJ build its new plant?
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