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Trent Inc. needs an additional worker on a multiyear project. It could hire an employee for a $79,000 annual salary. Alternatively, it could engage an independent contractor for a $86,000 annual fee. Trent's income tax rate is 21 percent. Compute the annual after-tax cost of each option and indicate which minimizes the after-tax cost of obtaining the worker. (Round all your intermediate calculations to the nearest whole dollar amount.)

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Capricious23

Answer:

Option 1 minimizes the after tax cost of obtaining the worker. After tax cost of hiring an employee = $62,410

Explanation:

Option 1: After tax cost of hiring an employee

After-tax cost of employee = $79,000 × (1 - 0.21) = $62,410

Option 2: After tax cost of engaging an independent contractor:

After tax cost of independent contractor = $86,000 × (1 - 0.21) = $67,940

Option 1 offers less cost, thus it is recommended to hire an employee.

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