Let the interest rate before taxes be 4% and assume the inflation rate is 3.5%. Three individual
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Question:
Let the interest rate before taxes be 4% and assume the inflation rate is 3.5%. Three individual farmers are in 20%, 30%, and 40% tax brackets, respectively.
a. Determine how much (after taxes) each farmer could afford to bid for a piece of land expected to return $60.00 per year (in today’s purchasing power) into the foreseeable
future. Assume that the inflationary component of the opportunity cost is not taxed but the real component is taxed.
b. Now assume that real component and one-half of the inflationary component of the opportunity cost are taxed. How does this change the maximal bid prices each producer
would be willing to pay?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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