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A taxpayer capitalizes a wholly owned corporation with $100,000. The corporation invests in a project that earns an annual pretax rate of return of 15% and faces a 15% corporate tax rate. The taxpayer faces a personal tax rate of 39.6% and expects to liquidate the corporation after 20 years. a. What is the after-tax rate of return on this investment? b. Do you recommend that the taxpayer make this investment via an S corporation to avoid double taxation? Assume the corporation distributes enough cash to the taxpayer each year to allow him to pay his taxes on the S corporation income.
A. Note here assuming that the capital gains tax rate equals the personal tax rate on ordinary income of 39.6%. The after tax accumulation in the corporation is given by.
Calculations 1[1+R(1-tc)]n(1-tcg)+tcg $1
R=.15 tc=.15 tcg-.396
to calculate the after tax rate of return
the result from the first calculation divided by $100,000 to the power of 1/year
B. Calculate the after tax return to the S-corp and compare to your return in part a
All-Star Automotive Company experienced the following accounting events during 2016: 1. Performed services for $25,000 cash. 2. Purchased land for $6,000 cash. 3. Hired an accountant to keep the books.
What function do they perform?
name three of the fundamental principles of engineering economics.what is the decision rule for making an in investment based on present worth
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. On the consolidated financial statements for 2010..
What information does M&S provide on the target allocation of its pension assets? How do the allocations relate to the expected returns on these assets?
fairfax company uses weighted-average process costing to account for its production costs. direct labor is added
The comparative statements of Osborne Company are presented here.
During the course you will be required to develop a Course Project having to do with writing notes for the financial statements of a fictitious Company. Create Income Statement, Retained Earnings Statement and Balance Sheet for a fictitious Company. ..
A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:
Develop a business plan for an event company. Identify alternative venues (indoor vs. outdoor, city vs. suburb). Calculate Breakeven point and Target Profit. Describe why you made certain decisions and price points.
A house painting business had revenues of $16,800 and expenses of $9,800 last summer.- calculate net flow for the business for this period.
Briefly discuss the ways a realistic budget will benefit the owner of Baby cakes versus having no budget at all. - Use Babycakes as the company and any specific product details in your explanation.
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