A government uses tax money from the private sector for a project that yields an annual...

 

Transcribed Image Text:

A government uses tax money from the private sector for a project that yields an annual benefit of $40 a year (starting next year and continuing forever). The rate of return in the private sector is 10 percent and income tax rate is 25 percent. (a) Assuming that the tax money came at the expense of consumption, what is the present value of the benefits of the project? (b) Now assume that the tax money came at the expense of investment, what is the present value? A government uses tax money from the private sector for a project that yields an annual benefit of $40 a year (starting next year and continuing forever). The rate of return in the private sector is 10 percent and income tax rate is 25 percent. (a) Assuming that the tax money came at the expense of consumption, what is the present value of the benefits of the project? (b) Now assume that the tax money came at the expense of investment, what is the present value?

Answer rating: 100% (QA)

To calculate the present value of the benefits of the project in b... View the full answer