Question

Darlene plans to purchase $3,000 in furniture for her office. She is currently in the 20% tax bracket, so her after tax cost of the furniture is $ if she purchases it in the current year. She expects her marginal rate will increase to 25% next year. If she waits until next year to purchase the furniture and her after tax rate of return is 7%, the after-tax cost of her furniture will be _________$ (Round your answers to the nearest whole dollar.)

Answer 1

Answer:

$2,400; $2,299

Explanation:

Generally, the principle of present value of money stipulates that the value of a specific amount of money today is worth more than its value in the future. Mathematically:

Value today:

Tax amount = $3,000 x 0.20 = $600

Value = $3,000 - $600 = $2,400

Value next year:

Tax amount = $3,000 x 0.25 x 0.935 = $701

Value = $3,000 - $701 = $2,299