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
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Chapter 3, Problem 12AP
Firm E must choose between two alternative transactions. Transaction 1 requires a $9,000 cash outlay that would be nondeductible in the computation of taxable income. Transaction 2 requires a $13,500 cash outlay that would be a deductible expense. Determine which transaction has the lesser after-tax cost, assuming that:
- a. Firm E’s marginal tax rate is 20 percent.
- b. Firm E’s marginal tax rate is 40 percent.
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Homework i
Firm E must choose between two alternative transactions. Transaction 1 requires a $13,250 cash outlay that would be nondeductible in
the computation of taxable income. Transaction 2 requires a $18,700 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.
Complete this question by entering your answers in the tabs below.
Required A
Required B
After-tax cost
Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 25 percent.
Note: Negative amounts should be indicated by a minus sign.
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Transaction 1
20
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Transaction 2
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Company N will receive $55,000 of taxable revenue from a client. Use Appendix A and Appendix B.
Required:
Compute the NPV of the $55,000 assuming that Company N will receive $27,500 now (year 0) and $27,500 in year 1. The company’s marginal tax rate is 30 percent, and it uses a 6 percent discount rate.
Compute the NPV of the $55,000 assuming that Company N will receive $27,500 in year 1 and $27,500 in year 2. The company’s marginal tax rate is 40 percent, and it uses a 4 percent discount rate.
Compute the NPV of the $55,000 assuming that Company N will receive $11,000 now (year 0) and $11,000 in years 1, 2, 3, and 4. The company’s marginal tax rate is 10 percent, and it uses a 9 percent discount rate.
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 the
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...
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