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Zach lives two periods. He ea rns $10,000 in the first period a nd nothing in the second period. The rate of return is 10 percent and there is an incom e tax (applied to labor and interest earnings) of 50 percent. Zach decides to save half of his first period earnings, which he consumes (along with interest earned) in the second pe riod.
a. What is Zach’s income tax liab ility each period? What is the present value of his lifetime tax payments?
b. Suppose that a consumption tax of 50 percent replaces the incom e tax in the second period (after Zach has mad e his saving decision). How m uch does he pay in taxes the second period? What is the present value of his l ifetime tax payments? Compare your answer t o the present value of lifetime tax payments in part (a), and explain the relevance of the comparison to tra nsitional problems in moving to a consumption tax.
All department heads are required to re-justify their fiscal needs annually during the budget cycle. Budget allocations are made accordingly. This is a description of which of the following types of budgeting? What is relevant range? Give two example..
Your Bank has stated that it pays 3% Interest, annually compounded, for a 7-year certificate of deposit. You have decided to invest $10,000 for 7 years. If the average rate of Inflation during the 7 years is 2.5% per year during the 7 years, & you an..
Moving Cash Flows What is the value in year 5 of a $2,500 cash flow made in year 8 when interest rates are 11.6 percent? Solving for Rates What annual rate of return is earned on a $2,100 investment when it grows to $4,700 in nineteen years?
Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 12.5 percent. You and the lender agree that the interest on the loan will be 0.125 × $20,000 = $2,500. So the lender ..
Anton, Inc., just paid a dividend of $2.55 per share on its stock. The dividends are expected to grow at a constant rate of 5.5 percent per year, indefinitely. Assume investors require a return of 11 percent on this stock. What will the price be in t..
Far Side Corporation is expected to pay the following dividends over the next four years: $11, $7, $4, and $3. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14..
You agreed to provide consulting services to ABC Corporation. The agreed price to be paid to you for these services is $90,000. You have performed the service, have requested payment, and ABC Corporation has refused payment disputing the value and th..
you are planning to purchase 100 shares of preferred stock and must choose between stock a and stock b. stock a pays an
Which one of the following is an example of diversifiable risk?
If the cost of writing a payroll check is $1.50,what additional amount could be saved on an annual basis from switching to a monthly payroll period?
John bought 100 stock of Ford for $8 per share a year ago. Today he decides to sell the stocks for $16 per share. During this year, John also received $0.20 dividend per share. What is the dividend yield on Ford stock? Which of the following securiti..
A company collected $10,000 cash from a customer as a deposit for goods that will be shipped next quarter. Which of the following items would be increased by this cash collection transaction?
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