The Egret Company has a 40% combined Federal and state marginal tax rate.
Egret's board estimates that, if its current president should die, the company would incur $200,000 in costs to find a suitable replacement. In addition, profits on various projects the president is responsible for would likely decrease by $300,000. The president has recommended that Egret purchase a $500,000 life insurance policy. How much insurance should the company carry on the life of its president to compensate for the after-tax loss that would result from the president's death? Assume that the $200,000 costs of finding a president are deductible and the lost profits would have been taxable.