2. 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 Subchapter S to be treated as a passthrough 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.
2. 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 Subchapter S to be treated as a passthrough 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.
Chapter11: The Corporate Income Tax
Section: Chapter Questions
Problem 11MCQ
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Transcribed Image Text:2. 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 Subchapter S to be treated as a passthrough 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.
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