Question: Firm E must choose between two alternative transactions. Transaction 1 requires a $10,500 cash outlay that would be nondeductible in the computation of taxable income.

Firm E must choose between two alternative transactions. Transaction 1 requires a $10,500 cash outlay that would be nondeductible in the computation of taxable income. Transaction 2 requires a $12,800 cash outlay that would be a deductible expense.

Required:

Determine the after-tax cost for each transaction. Assume Firm Es marginal tax rate is 10 percent.
Determine the after-tax cost for each transaction. Assume Firm Es marginal tax rate is 30 percent.

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