Comparing the taxes an individual pay

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Question: Compare the taxes an individual would pay if he had a million dolla.4 to invest in a machine which lasts one period only, yielding a gross return of $1.2 million, if he incorporates and if he does not. Assume that if he incorporates he

(a) lends the company the million dollars to buy the machine; or

(b) invests the money as equity.

Also, assume that if he incorporates and provides capital to the firm in the form of equity, he

(a) pays out the net profits as dividends; or (

b) manages to distribute the funds in a way that gets favorable capital gains treatment; or

(c) dies nest year, before the profits have been distributed, and leaves the firm-with its cash position of $200,00 to his son, who manages to sell the firm for $200,00. Assume that he can subtract full million dollars as depreciation, and that interest is tax deductible.

Reference no: EM131442199

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