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Evaluate the tax savings and after-tax cash-flow

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Reference no: EM13518192

William, an employee for Williamson Corporation, receives an annual salary of $120,000 and is in the 28 percent marginal tax bracket. He is eligible to contribute to Williamson's 401(k) plan and could contribute the pretax amount of $12,000. Alternatively, he could also contribute only $6,000 to the plan and use the remaining $6,000 to purchase municipal bonds paying interest at a 6 percent rate. Evaluate the tax savings and after-tax cash-flow effect of each of these investment choices. State which option you recommend for William and explain why.

Reference no: EM13518192

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