Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments. Required: What is the after-tax cost if Isabel pays the $41,000 bill in December?
Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments. Required: What is the after-tax cost if Isabel pays the $41,000 bill in December?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax
Required:
- What is the after-tax cost if Isabel pays the $41,000 bill in December?
Transcribed Image Text:EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of
Return
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
4%
5%
6%
7%
8%
9% 10% 11% 12%
0.962
0.952 0.943
0.935
0.926 0.917 0.909
0.901
0.893
0.925
0.907 0.890 0.873
0.857 0.842 0.826
0.812
0.797
0.889
0.864 0.840
0.816
0.794
0.772 0.751
0.731
0.712
0.855
0.823 0.792
0.763 0.735
0.708 0.683 0.659
0.636
0.822 0.784 0.747
0.713 0.681
0.650 0.621 0.593
0.567
0.790 0.746
0.705
0.666
0.630
0.596 0.564
0.535
0.507
0.760
0.711
0.665 0.623
0.583 0.547
0.513 0.482
0.452
0.731
0.677
0.627 0.582
0.540
0.502 0.467
0.434
0.404
0.703
0.645
0.592
0.544
0.500
0.460 0.424
0.391
0.361
0.676
0.614
0.558
0.508
0.463 0.422 0.386 0.352 0.322
0.650
0.585
0.527
0.475
0.429
0.388 0.350 0.317
0.287
0.625
0.557
0.497
0.444
0.397 0.356 0.319
0.286
0.257
0.601 0.530 0.469
0.415
0.368 0.326
0.290 0.258
0.229
0.577 0.505 0.442
0.388
0.340 0.299 0.263 0.232
0.205
0.555 0.481
0.417 0.362
0.315 0.275 0.239 0.209
0.183
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