Problem 18-46 (LO. 7)

Refer to Example 42 in text Section 18-5e.

• Albert owns 100% of A Corporation, Betty is the sole proprietor of B Company, and Cai is the sole proprietor of C Company.
• Each business generated $500,000 of taxable income and before-tax cash flow.
• A Corporation and B Company produce a product, but C Company provides accounting services.
• A Corporation will distribute all of its after-tax income to Albert.
• All three owners face a 37% marginal tax rate on ordinary income.
• B Company qualifies for the 199A deduction, but C Company does not because it provides accounting services and its taxable income exceeds the threshold for that deduction.

Assume the tax rate applied to dividend income equals the top 20% net long-term capital gain rate plus the 3.8% net investment income tax rate. The corporate tax rate is 21% and 199A deduction is 20%.

What will be the values of A Corporation, B Company, and C Company after three years? Assume that each business can reinvest its after-tax cash flow back into the business and that there is no unrealized appreciation of their assets.

If required, round your answers to the nearest dollar.

	A Corporation	B Company	C Company
Initial investment	$5,000,000	$5,000,000	$5,000,000
Taxable income to owners in year 1	fill in the blank 1	fill in the blank 2	fill in the blank 3
After-tax cash flow for year 1	fill in the blank 4	fill in the blank 5	fill in the blank 6
Investment at end of year 1	fill in the blank 7	fill in the blank 8	fill in the blank 9
Taxable income to owners in year 2	fill in the blank 10	fill in the blank 11	fill in the blank 12
After-tax cash flow for year 2	fill in the blank 13	fill in the blank 14	fill in the blank 15
Investment at end of year 2	fill in the blank 16	fill in the blank 17	fill in the blank 18
Taxable income to owners in year 3	fill in the blank 19	fill in the blank 20	fill in the blank 21
After-tax cash flow for year 3	fill in the blank 22	fill in the blank 23	fill in the blank 24
Investment at end of year 3	$fill in the blank 25	$fill in the blank 26	$fill in the blank 27