at amoun haron hop e Value o hution
Chapter15: Choice Of Business Entity—other Considerations
Section: Chapter Questions
Problem 94TPC
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Transcribed Image Text:1. If Dave and his employer contribute a total of $10,000 annually, how much
will that amount accumulate to over the next 30 years, at which time Dave
and Sharon hope to retire?
Future Value of Annuity
Contribution
Years
Annual rate of return
Future value
$10,000
30
7.00%
$944,607.86
2. Assuming that Dave's marginal tax bracket is 25 percent, by how much should his federal taxes
decline this year if he contributes $7,000 to his retirement account?
3. The Sampsons' tax bracket has not changed. Assuming that Dave contributes $7,000 to his
retirement account and that his taxes are lower as a result, by how much are Dave's cash flows
reduced over the coming year? (Refer to your answer in question 2 when solving this problem.)
4. If Dave contributes $7,000 to his retirement account, he will have less cash inflows as a result.
How can the Sampsons afford to make this contribution? Suggest some ways that they may be able
to offset the reduction in cash inflows.
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