PRINCIPLES OF TAXATION F/BUS.+INVEST.
22nd Edition
ISBN: 9781259917097
Author: Jones
Publisher: MCG
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Chapter 3, Problem 11AP
Investor B has $100,000 in an investment paying 9 percent taxable interest per annum. Each year B incurs $825 of expenses relating to this investment. Compute B’s annual net
- a. B’s marginal tax rate is 10 percent, and the annual expense is not deductible.
- b. B’s marginal tax rate is 35 percent, and the annual expense is deductible.
- c. B’s marginal tax rate is 25 percent, and the annual expense is not deductible.
- d. B’s marginal tax rate is 40 percent, and only $500 of the annual
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Taxpayer Y, who has a 30 percent marginal tax rate, invested $65,000 in a bond that pays 8 percent annual interest. Compute Y’s annual net cash flow from this investment assuming that
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Mr. and Mrs. Rath invested in a business that will generate the following
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Taxable revenue
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If the Raths' marginal tax rate over the
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O $48,750
O $45,589
O $65,000
None of the above.
Year O
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(15,000)
Year 1
35,000
(15,000)
Year 2
55,000
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Firm E must choose between two business opportunities. Opportunity 1 will generate an $14,240 deductible loss in year $8,900
taxable income in year 1, and $35,600 taxable income in year 2. Opportunity 2 will generate $9,900 taxable income in year O and
$8,900 taxable income in years 1 and 2. The income and loss reflect before-tax cash inflow and outflow. Firm E uses a 5 percent
discount rate and has a 40 percent marginal tax rate over the three-year period. Use Appendix A and Appendix B.
Required:
a1. Complete the tables below to calculate NPV.
a2. Which opportunity should Firm E choose?
b1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate over the three-year period is 15 percent.
b2. Which opportunity should Firm E choose?
c1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate is 40 percent in year O but only 15 percent in years 1
and 2.
c2. Which opportunity should Firm E choose?
Chapter 3 Solutions
PRINCIPLES OF TAXATION F/BUS.+INVEST.
Ch. 3 - Does the NPV of future cash flows increase or...Ch. 3 - Explain the relationship between the degree of...Ch. 3 - Does the after-tax cost of a deductible expense...Ch. 3 - Prob. 4QPDCh. 3 - Prob. 5QPDCh. 3 - Prob. 6QPDCh. 3 - Prob. 7QPDCh. 3 - Which type of tax law provision should be more...Ch. 3 - In the U.S. system of criminal justice, a person...Ch. 3 - Identify two reasons why a firms actual marginal...
Ch. 3 - Prob. 11QPDCh. 3 - Prob. 12QPDCh. 3 - Prob. 1APCh. 3 - Prob. 2APCh. 3 - Prob. 3APCh. 3 - Use a 5 percent discount rate to compute the NPV...Ch. 3 - Consider the following opportunities: Opportunity...Ch. 3 - Prob. 6APCh. 3 - Refer to the income tax rate structure in the...Ch. 3 - Prob. 8APCh. 3 - Company N will receive 100,000 of taxable revenue...Ch. 3 - Prob. 10APCh. 3 - Investor B has 100,000 in an investment paying 9...Ch. 3 - Firm E must choose between two alternative...Ch. 3 - Company J must choose between two alternate...Ch. 3 - Firm Q is about to engage in a transaction with...Ch. 3 - Corporation ABC invested in a project that will...Ch. 3 - Prob. 16APCh. 3 - Investor W has the opportunity to invest 500,000...Ch. 3 - Prob. 18APCh. 3 - Prob. 19APCh. 3 - Prob. 20APCh. 3 - Prob. 21APCh. 3 - Prob. 1IRPCh. 3 - Firm V must choose between two alternative...Ch. 3 - Prob. 3IRPCh. 3 - Refer to the facts in problem 3. Company WB is...Ch. 3 - Prob. 5IRPCh. 3 - Prob. 6IRPCh. 3 - Prob. 7IRPCh. 3 - Prob. 8IRPCh. 3 - Prob. 9IRPCh. 3 - Prob. 1TPCCh. 3 - Firm D is considering investing 400,000 cash in a...
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