Firm M and Firm N are related parties. For the past several years, Firm Ms marginal tax rate has been 30 percent, and Firm Ns marginal tax rate has been 21 percent. Firm M is evaluating a transaction that will generate $10,000 income in each of the next three years. Firm M could restructure the transaction so that the income would be earned by Firm N. Because of the restructuring, the annual income would decrease to $9,000.

1. What is the annual after-tax profit if M continues to engage in the transaction?
2. What is the annual after-tax profit if M restructures and engages N in the transaction?