Grant and Marvin organized a new business as a corporation in which they own equal interests. The
Question:
Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year.
a. Assume the corporation expects to generate $500,000 of income next year and has a 21 percent tax rate. Calculate the net present value of the future tax savings associated with the current year operating loss, using a 4 percent discount rate.
b. Now assume that the corporation makes an election under Sub chapter S to be treated as a pass through entity. If Grant’s marginal tax rate is 35 percent and Marvin’s marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the excess business loss limitation does not apply.
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Principles Of Taxation For Business And Investment Planning 2019 Edition
ISBN: 9781260161472
22nd Edition
Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan