PRINCIPLES OF TAXATION F/BUS...(LL)
PRINCIPLES OF TAXATION F/BUS...(LL)
23rd Edition
ISBN: 9781260433197
Author: Jones
Publisher: MCG
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Chapter 3, Problem 11AP

Investor B has $100,000 in an investment paying 9 percent taxable interest per annum. Each year B incurs $825 of expenses relating to this investment. Compute B’s annual net cash flow assuming the following:

  1. a. B’s marginal tax rate is 10 percent, and the annual expense is not deductible.
  2. b. B’s marginal tax rate is 35 percent, and the annual expense is deductible.
  3. c. B’s marginal tax rate is 25 percent, and the annual expense is not deductible.
  4. d. B’s marginal tax rate is 40 percent, and only $500 of the annual
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Taxpayer Y, who has a 30 percent marginal tax rate, invested $65,000 in a bond that pays 8 percent annual interest. Compute Y’s annual net cash flow from this investment assuming that a.  The interest is tax-exempt income.b.  The interest is taxable income.
Firm E must choose between two alternative transactions. Transaction 1 requires a $9,150 cash outlay that would be nondeductible in the computation of taxable income. Transaction 2 requires a $14,800 cash outlay that would be a deductible expense. Required: a. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 25 percent. b. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 45 percent.
You purchase a REIT for $50. It distributes $3 consisting of $1 in income, $0.50 in long-term capital gains, $0.30 in short-term capital gains, and $1.20 in return of capital. After a year, you sell the stock for $56. If you are in the 30 percent income tax bracket and 15 percent long-term capital gains bracket, what are your taxes owed?

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PRINCIPLES OF TAXATION F/BUS...(LL)

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