In 2016, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural

Question:

In 2016, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural in the lobby of the new corporate headquarters under construction. The artist's commission was $180,000, payable on completion of the mural. The artist finished her work and received the $180,000 commission in 2018. AS has a 35 percent marginal tax rate and uses a 7 percent discount rate to compute NPV.

a. Compute AS's after-tax cost of the commission if it can deduct the $180,000 accrued expense in 2016.

b. Compute AS's after-tax cost of the commission if the economic performance requirement delays the deduction until 2018.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...