Describe how time value of money affects your calculations

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Reference no: EM13906249

Nicole is a calendar-year taxpayer who accounts for her business using the cash method. On average, Nicole sends out bills for about $12,000 of her services at the first of each month. The bills are due by the end of the month, and typically 70 percent of the bills are paid on time and 98 percent are paid within 60 days.

a) Suppose that Nicole is expecting a 2 percent reduction in her marginal tax rate next year. Ignoring the time value of money, estimate the tax savings for Nicole if she postpones mailing of bills for December until January 1 of next year.

b) Describe how the time value of money affects your calculations.

c) Would this tax savings strategy create any additional business risks? Explain.

Reference no: EM13906249

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