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You graduate from college and take a job at a consulting firm with a wage of $25 per hour. Your job is extremely flexible: you can choose to work any number of hours from 0 to 2,000 per year.
a. Suppose that there is an income tax of the following form: Income up to $10,000: no tax Income from $10,000 to $30,000: 20% tax rate Income from $30,000 up: 30% tax rate Draw a graph in hours worked/consumption space, showing your opportunity set with and without the tax system. With the tax system in place, are there any points that you are particularly unlikely to choose? Why or why not?
b. Say that you choose to work 1,500 hours per year. What is your marginal tax rate? What is your average tax rate? Do these rates differ? Why or why not?
c. Suppose that the two tax rates are increased to 25% and 50%. What is the likely effect on the labor supply of men? What is the likely effect on the labor supply of married women? Explain how the responses might differ between these groups, both in terms of underlying economic effects and in terms of the empirical evidence on labor supply responses.
A reset mortgage allows for one interest rate reset during the life of the loan. The mortgage rate will be reset after 5 years, to fully amortize at the end of the original 30 year period (i.e. after 25 more years). For a 6 5/8%, $120,000, mortgage, ..
The D.J. Masson Corporation needs to raise $400,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 2/10, net 90, and it currently pays on the 10th day and takes discounts.
An individual has $110,000 in a retirement account. Each month she deposits $1,000 while earning 5% a year on her money. How much money will be in the account in 10 years? How much of this amount is due to the $110,000 that she began with and how muc..
Millbridge Hospital buys its supplies in bulk and has recently switched vendors. The first purchase Millbridge made was for 500 boxes of gauze at $3.46 a box. The purchase had payment terms of 2/15 N/30. Millbridge earns four percent on its idle cash..
General Matter’s outstanding bond issue has a coupon rate of 8%, and it sells at a yield to maturity of 7.00%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face v..
What is the net present value of a project if the required rate of return is 12 percent? The cash flows, in order, are -$42,398 (initial cost), $13,407 (year 1 CF), $21,219 (year 2 CF) and $17,800 (year 3 CF).
Determine the key factors that will drive the financial planning process for most organizations in the post-merger phase, and examine the related impact to the organization process. Provide support for your rationale.
What is the taxpayer’s gross income in each of the following situations? Darrin received a salary of $50,000 in 2013 from his employer, Green Construction. Determine the effect of the scholarship on gross income of Sally (for question 1) and then det..
An annuity due makes 9 annual payments of $425 each. What present value or price should someone pay for this stream at time point zero if they seek to earn an annual return of 5.5%?
What is the specific federal income tax treatment of an S Corp bank? How are stock holders taxed?
Consider the role of financial intermediaries (banks, credit unions, insurance companies, broker/dealers, etc.) and their impact in/on your economic life.
You are an investment banker advising a Euro bank about a new international bond offering it is considering. The proceeds are to be used to fund Eurodollar loans to bank clients. What type of bond instrument would you recommend that the bank consider..
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