Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
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
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
a. The interest is tax-exempt income.b. The interest is taxable income.
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?
Firm E must choose between two alternative transactions. Transaction 1 requires a $9,150 cash outlay that would be nondeductible in
the computation of taxable income. Transaction 2 requires a $14,800 cash outlay that would be a deductible expense.
Required:
a. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 25 percent.
b. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 45 percent.
Chapter 3 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
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...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- You purchase a REIT for $50. It distributes $3 consisting of $1 in income, $0.50 in long-term capital gains, $0.30 in short-term capital gains, and $1.20 in return of capital. After a year, you sell the stock for $56. If you are in the 30 percent income tax bracket and 15 percent long-term capital gains bracket, what are your taxes owed?arrow_forwardPerkin Corporation has determined that it qualifies for a tax credit in the amount of $120,000. For the current year, it has tax liability before credits of $75,000. It expects at least that amount of tax liability next year. Required: If the excess credit is not refundable but may be carried forward, calculate the value of the credit. Assume Perkins uses a 4 percent discount rate to calculate present value. If the excess credit is refundable, what is the value of the credit?arrow_forwardMr. and Mrs. Rath invested in a business that will generate the following cash flows over a three-year period. Use Appendix A. Taxable revenue Deductible expenses If the Raths' marginal tax rate over the three year period is 25% and they use a 5% discount rate, compute the NPV of the transaction. O $48,750 O $45,589 O $65,000 None of the above. Year O 25,000 (15,000) Year 1 35,000 (15,000) Year 2 55,000 (20,000)arrow_forward
- Firm E must choose between two business opportunities. Opportunity 1 will generate an $11,200 deductible loss in year 0, $7,000 taxable income in year 1, and $28,000 taxable income in year 2. Opportunity 2 will generate $8,000 taxable income in year 0 and $7,000 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 0 but only 15 percent in years 1 and 2. c2. Which opportunity should Firm E choose? Complete this question by entering your…arrow_forwardYou received $5,000 in interest revenue during the year. Your federal marginal tax rate was 26% and average tax rate was 20%. How much federal income taxes did you pay? Select one: a. $1,300 b. $1,650 c. $950 d. $1,450 e. $3,300arrow_forwardIf you would have to pay $5,000 in taxes on $50,000 taxable income and $8,000 in taxes on $60,000 taxable income, then the marginal tax rate on the additional $10,000 of income is A.- 15 percent, and the average tax rate is 30 percent at the $60,000 income level. B.- 30 percent, and the average tax rate is about 13 percent at the $60,000 income level. C.- 30 percent, but average tax rates cannot be determined from the information given. D.- 30 percent, and the average tax rate is 20 percent at the $50,000 income level.arrow_forward
- Firm E must choose between two business opportunities. Opportunity 1 will generate an $11,840 deductible loss in year 0, $7,400 taxable income in year 1, and $29,600 taxable income in year 2. Opportunity 2 will generate $8,400 taxable income in year 0 and $7,400 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 thearrow_forward1. Suppose you currently earn taxable income of $100,000 per year. You are subject to an MTR of 50 percent. Currently, your ATR is 35 percent. Calculate your annual tax. Calculate the extra tax that you would pay per year if your annual income increased to $110,000. What is your ATR when your annual income is $110,000?arrow_forwardSuppose you are a manager for a certain company. You earn $50,000 per year and are in the 28% federal income tax bracket. Each year you contribute $4,500 tax free to your individual retirement account, IRA. The account earns 6% annual interest. In addition, the amount of tax that you save each year by making these "pre-tax" contributions is invested in a taxable aggressive growth mutual fund averaging 16%. (c)Although the income from this investment is taxable each year, using Table 12-1, how much will the "tax savings" fund be worth (in $) in 30 years? (Round your answer to the nearest cent.) $arrow_forward
- Assume an individual makes a lump sum investment at the beginning of year one of $38,420, the present value of which is $38,420. The investor’s discount rate, for an alternative safe investment, is 11.40 percent after tax. The expected return on this investment (received at each year-end) is as follows.arrow_forwardE Co. has incurred $10,000 in costs to issue bonds. The costs are fees paid to a transfer agent, commission on the sale of bonds, and other related fees and expenses. How should these costs be deducted for tax purposes? Question 10 options: Deduct $10,000 over a two-year period, claiming $5,000 per year. Deduct $10,000 over a five-year period, claiming $2,000 per year. Claim $10,000 once all the bonds are sold. Claim $10,000 as an expense once the bonds mature. B Co. plans to raise $200,000 for an expansion project through fixed dividend preferred shares at 9%. B's tax rate is 27%. How much corporate income will B require to service the cost of the expansion? Question 7 options: $0 $18,000 $24,658 $4,860arrow_forwardMr. Hayes plans to pay $100,000 for one of three investment alternatives that have the same risk. The income from investment 1 would be taxed at Mr. Hayes' 24% regular tax rate, the income from investment 2 would be taxed at a 15% preferential rate, and the income from investment 3 is tax-exempt. The investments offer the following before-tax yields. • Investment 1: 8.25% • Investment 2: 7.50% • Investment 3: 6.375% Which investment should Mr. Hayes select? Group of answer choices Mr. Hayes is neutral between investment 2 and investment 3. Investment 1 Investment 2 Investment 3arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Securities Markets and Transactions Pt1; Author: Larry Byerly;https://www.youtube.com/watch?v=v0ClVlaxWFY;License: Standard Youtube License