Reference no: EM132473298
Question 1.) Art is in the 28% marginal tax bracket for 2019. At the end of the year, he paid a $10,000 bill for business expenses. Due to a special tax provision, he can deduct the $10,000 in either 2019 or 2020. Art expects to be in a 32% marginal tax bracket for 2020. Assume (1) tax payments and savings occur at year-end, and (2) a discount rate of 8%. If deducted in 2019, the present value of Art's tax savings is computed as
A. $10,000 x 28% x 0.928
B. $10,000 x 28% x 1.0
C. $10,000 x 32% x 0.928
D. $10,000 x 32% x 1.0
Question 2.) Art is in the 28% marginal tax bracket for 2019. At the end of the year, he paid a $10,000 bill for business expenses. Due to a special tax provision, he can deduct the $10,000 in either 2019 or 2020. Art expects to be in a 32% marginal tax bracket for 2020. Assume (1) tax payments and savings occur at year-end, and (2) a discount rate of 8%. If deducted in 2019, the present value of Art's tax savings is computed as
A. $10,000 x 28% x 0.928
B. $10,000 x 28% x 1.0
C. $10,000 x 32% x 0.928
D. $10,000 x 32% x 1.0
Question 3.) at the end of the year, Larry will invest $50,000 in one of two choices. Investment A will yield a 10% return ($5,000) at the end of the following year and will be taxed as a long-term capital gain (15%). Investment B will yield a 12% return ($6,000) at the end of the following year, but will be taxed as ordinary income. Assume Larry is in the 24% marginal tax bracket. Ignoring present value factors (since the cash flows timing of the two alternatives are the same) Larry's after-tax cash flow for Investment A would be computed as -
A. $5,000 - $1,200 tax
B. $5,000 - $750 tax
Question 4.) At the end of the year, Larry will invest $50,000 in one of two choices. Investment A will yield a 10% return ($5,000) at the end of the following year and will be taxed as a long-term capital gain (15%). Investment B will yield a 12% return ($6,000) at the end of the following year, but will be taxed as ordinary income. Assume Larry is in the 24% marginal tax bracket. Ignoring present value factors (since the cash flows timing of the two alternatives are the same) Larry's after-tax cash flow for Investment B would be computed as -
A. $6,000 - $1,440 tax
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