At the beginning of the year, Mr$.$ Lanier put $$50,000$ cash into Investment X$.$ At the end of the year, he received a check for $$2,800,$ representing his annual return on the investment. Mr$.$ Lanier$$s marginal tax rate on ordinary income is $37$ percent. However, his return on Investment X is a capital gain taxed at $20$ percent. At the beginning of the year, Mr$.$ Lanier could have invested his $$50,000$ in Business Z with an $8$ percent annual return. However, this return would have been ordinary income rather than capital gain.

Required:

Considering the fact that Mr$.$ Lanier could have invested in Business Z$,$ how much implicit tax did he pay with respect to Investment X$?$

Did Mr$.$ Lanier make the correct decision by putting his $$50,000$ into Investment X instead of Business Z$?$

Answer rating: 100% (QA)

To solve this problem we need to calculate the aftertax returns for both Investment X and Business Z ... View the full answer