ed as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss
ed as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year. Use Appendix A.
b. Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity. If Grant's marginal
tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss limitations do not apply.
* I only need Requirement B to be solved
Transcribed Image Text:APPENDIXA
Present Value of $1
Periods
3%
4%
5%
6%
7%
8%
9%
1
.971
962
.952
.943
.935
.926
917
.943
925
.907
.890
.873
.857
.842
3
.915
.889
.864
.840
.816
.794
.772
.888
.855
.823
.792
.763
.735
708
.863
.822
.784
.747
.713
.681
.650
6.
.837
.790
.746
.705
.666
.630
.596
.813
.760
.711
665
.623
.583
547
8.
.789
.731
.677
.627
.582
.540
.502
9.
.766
.703
.645
.592
.544
.500
460
10
.744
.676
.614
.558
.508
.463
422
11
.722
.650
.585
.527
475
429
.388
12
.701
.625
.557
497
.444
.397
.356
13
.681
.601
.530
469
415
368
326
14
.661
.577
.505
442
.388
340
299
15
.642
.555
.481
417
.362
.315
.275
16
.623
.534
458
.394
.339
.292
.252
17
.605
.513
436
371
.317
.270
231
18
.587
494
416
350
.296
.250
.212
19
.570
475
.396
.331
.277
.232
.194
20
.554
456
.377
312
.258
.215
.178
Periods
10%
11%
12%
13%
14%
15%
20%
.909
.901
.893
.885
.877
.870
.833
.826
.812
.797
783
.769
.756
.694
751
.731
.712
.693
.675
.658
.579
4
.683
.659
.636
.613
.592
.572
482
.621
.593
.567
543
.519
497
402
6.
564
.535
.507
480
456
432
.335
7.
.513
482
452
425
400
376
.279
8
467
434
404
.376
351
327
.233
.424
391
.361
333
308
284
.194
10
386
.352
.322
295
270
.247
.162
11
350
317
287
.261
237
H 215
.135
Transcribed Image Text:Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a
$65,000 operating loss for the year. Use Appendix A.
Required:
a. Assume the corporation expects to generate $500,000 of income next year and has a 21 percent tax rate. Calculate the net present
value of the future tax savings associated with the current year operating loss, using a 4 percent discount rate. (Do not round
intermediate computations. Round your final answer to the nearest whole dollar amount.)
NPV of future tax savings
2$
13,125
b. Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity. If Grant's marginal
tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year
operating loss. Assume the basis and excess business loss limitations do not apply.
Current year tax savings
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