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I. During discussions relating to the formation of Kingfisher, Seth mentions that he may be interested in either (1) just selling all of his inventory in the current year for its fair market value of $96,000 or (2) proceeding with his involvement in Kingfisher's formation as shown above but followed by a sale of his stock five years later for $90,000. What would be the tax cost of these alternative plans, stated in present value terms? Assume a discount rate of 6%. The present value factors at 6% are 1.000 for year 1 and 0.7473 for year 5. Further, assume Seth's marginal income tax rate is 35% and his capital gains rate is 15%. If required, round your answers to the nearest dollar. The present value of Seth's tax cost associated with the current sale of inventory (alternative 1) for $96,000 is $ The present value of Seth's tax cost associated with the current receipt of 30 Kingfisher shares and $6,000 cash (alternative 2) and the subsequent sale of 30 Kingfisher shares for $90,000 in five years is $

I. During discussions relating to the formation of Kingfisher, Seth mentions that he may be interested in either (1) just selling all of his inventory in the current year for its fair market value of $96,000 or (2) proceeding with his involvement in Kingfisher's formation as shown above but followed by a sale of his stock five years later for $90,000. What would be the tax cost of these alternative plans, stated in present value terms? Assume a discount rate of 6%. The present value factors at 6% are 1.000 for year 1 and 0.7473 for year 5. Further, assume Seth's marginal income tax rate is 35% and his capital gains rate is 15%. If required, round your answers to the nearest dollar. The present value of Seth's tax cost associated with the current sale of inventory (alternative 1) for $96,000 is $ The present value of Seth's tax cost associated with the current receipt of 30 Kingfisher shares and $6,000 cash (alternative 2) and the subsequent sale of 30 Kingfisher shares for $90,000 in five years is $

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I. During discussions relating to the formation of Kingfisher, Seth mentions that he may be interested in either (1) just selling all of his inventory in the current year for its fair market value of $96,000 or (2) proceeding with his involvement in Kingfisher's formation as shown above but followed by a sale of his stock five years later for $90,000. What would be the tax cost of these alternative plans, stated in present value terms? Assume a discount rate of 6%. The present value factors at 6% are 1.000 for year 1 and 0.7473 for year 5. Further, assume Seth's marginal income tax rate is 35% and his capital gains rate is 15%. If required, round your answers to the nearest dollar. The present value of Seth's tax cost associated with the current sale of inventory (alternative 1) for $96,000 is $ The present value of Seth's tax cost associated with the current receipt of 30 Kingfisher shares and $6,000 cash (alternative 2) and the subsequent sale of 30 Kingfisher shares for $90,000 in five years is $
Transcribed Image Text:I. During discussions relating to the formation of Kingfisher, Seth mentions that he may be interested in either (1) just selling all of his inventory in the current year for its fair market value of $96,000 or (2) proceeding with his involvement in Kingfisher's formation as shown above but followed by a sale of his stock five years later for $90,000. What would be the tax cost of these alternative plans, stated in present value terms? Assume a discount rate of 6%. The present value factors at 6% are 1.000 for year 1 and 0.7473 for year 5. Further, assume Seth's marginal income tax rate is 35% and his capital gains rate is 15%. If required, round your answers to the nearest dollar. The present value of Seth's tax cost associated with the current sale of inventory (alternative 1) for $96,000 is $ The present value of Seth's tax cost associated with the current receipt of 30 Kingfisher shares and $6,000 cash (alternative 2) and the subsequent sale of 30 Kingfisher shares for $90,000 in five years is $
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