Mr. A, who is in a 35 percent marginal tax bracket, must decide between two investment opportunities, both of which require a $50,000 initial cash outlay in year 0. Investment 1 will yield $8,000 before-tax cash flow in years 1, 2, and 3. This cash represents ordinary taxable income. In year 3, Mr. A can liquidate the investment and recover his $50,000 cash outlay. He must pay a nondeductible $200 annual fee (in years 1, 2, and 3) to maintain Investment 1. Investment 2 will not yield any before-tax cash flow during the period over which Mr. A will hold the investment. In year 3, he can sell Investment 2 for $75,000 cash. His $25,000 profit on the sale will be capital gain taxed at 15 percent. Assuming a 6 percent discount rate, determine which investment has the greater NPV.
Answer to relevant QuestionsMs. Z has decided to invest $75,000 in state bonds. She could invest in State A bonds paying 5 percent annual interest or in State R bonds paying 5.4 percent annual inter-est. The bonds have the same risk, and the interest ...Discuss why and how a researcher might use secondary authorities in performing tax research. Indicate whether each of the following items is considered a primary authority or a secondary authority. a. Reg. §1.305-1(b). b. Rev. Rul. 67-225, 1967-2 C.B. 238. c. S.M. Jones and S.C. Rhoades-Catanach, Principles of ...Using an electronic research database such as Checkpoint, CCH Tax Research NetWork, or LexisNexis, do a keyword search on the phrase hobby loss to find secondary authorities discussing the tax treatment of losses incurred in ...One of your clients is planning to start a business. She has incurred costs to investigate potential locations for the business and hired a consultant to conduct a feasibility study. She wishes to know whether such costs ...
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